Eliminating Gharar, Maisir And Riba

Justice, Equality, Fairness, Ethics and Morality are values inherent to Islamic teaching on business conduct amongst both Muslims and non-Muslims. Any business conduct amongst both Muslims and non-Muslims. Any business practice that is not reflective of these values is surely rejected under Islamic law or Shariah. Business transactions that contain Gharar (Uncertainty), Maisir (Gambling) and Riba (Usury) are amongst those practices that are rejected.

Gharar (Uncertainty)

Uncertainty is a fact of human life. All of mankind faces uncertainty in their respective personal, social and business lives. Risks are always surrounding us whatever we are doing. Islam does not ignore this fact and does not prohibit people from facing the risks and uncertainties that life represents.

What is not allowed or prohibited is the exchange of a transaction with others on something that contains uncertainty or Gharar. In general insurance Gharar exists because insurance concept is a risk transfer mechanism by which an organisation can exchange its uncertainty for certainty. It is not possible to always predict if such a claim will take placeor how much this will incur. On the other hand some big cases as with the asbestosis issues, the WTC 9/11 event etc, the insurers were exposed to an unpredictably huge claim, where premium had no bearing on such exposures revealed after the claims came in.

Maisir (Gambling)

Where there is a serious Gharar (uncertainty) in a contract – then Maisir (Gambling or Speculation)
will naturally exists. Gambling is against the basic principles of justice, equity, fairness, ethics and morality, which are obligatory values within Islam.
Although in theory, conventional insurance is also meant to exclude any form of gambling in the sales contract, in practice there is always a very thin line involved.
Insurable interest, utmost good faith (uberimae fidae) and indemnity doctrinces within conventional insurance are not enough to eliminate a speculative (gambling) attitude from either side of the insured and insurer in some contracts (’Hole in One’ and ‘Satellite launching’ being good cases) contain a very clear element of gambling (Maisir) – unless an in depth proper knowledge is present with the underwriter(s). Maisir or gambling is rejected under Islam, as it can create ill feeling to one party or another, which was experienced in the asbestosis and WTC 9/11 incidents. These have led to each party seeking all legal angles to protect their own interest.

Riba (Usury or Taking and Charging Interest)

Riba is an exchange of Ribawi elements where there is a difference in time and/or quantity. The ribawi elements mentioned by the prophet Muhammad are gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt. By a similia analogy, money is similar to gold and silver where it is a modern way of exchange. Therefor a contract of exchange between the insurer and insured contains a Ribawi Element, i.e levels of compensation involving varying amounts and time scales.
The strict prohibition of interest in Islam is because of the following reasons :

1. Taking of interest implies appropriating another persons property withouy giving them anything in exchange, because the one whom lends the other one dollar for one dollar plus gets the extra for nothing.
2. Dependent on interest prevent people from working to earn money since the person with one dollar can earn extra dollars through interest either in advance or on later date without working for it. If it is happen to capital owner then they would not invest in the industry., trade and commerce, building and construction, as they will get extra earning without necessarily doing all of the hard work.
3. Permiting the taking of interest discourges people from doing good to one another. If interest is prohibited in a society, people will lend to each other with a good will, expecting back no more then what they have lent.
4. Riba is also totally prohibited in Islam because it tends to create unfair or injustice treatment between one party with another. it also exploits one by the others. In Ribawi economic the rich one tends to get more benefit compares with the poor one. The gap between the rich one and the poor one is becoming bigger and bigger as Riba have a spiral impact on increasing price for goods.