Gharar

Excessive uncertainty or ambiguity in a contract. One of the three major prohibitions in Islamic finance (alongside riba and maysir). Contracts must have clearly defined terms, subject matter, price, and obligations.

Gharar is prohibited because it can lead to exploitation, disputes, and injustice. Minor uncertainty (gharar yasir) is tolerated in everyday transactions, but major uncertainty (gharar fahish) — such as selling goods that don't yet exist or whose quality is unknown — invalidates a contract. Conventional insurance is often cited as containing gharar because the outcome (claim payout) is uncertain.

Gharar is excessive contractual uncertainty — ambiguity about what is being sold, for how much, whether it exists, or whether it can be delivered — and it is the second great prohibition of Islamic commercial law after riba, rooted in the Prophet's forbidding of 'the sale of the pebble and the sale of gharar' (Muslim). Classical examples: selling fish still in the sea, a calf not yet born, fruit before it appears. The prohibition is graded, not absolute: minor uncertainty (yasir) is tolerated because no contract can specify everything, while gharar severe enough to make the bargain a gamble voids it.

Insurance is the canonical modern battleground — conventional policies sell a payout contingent on an uncertain event for a fixed premium, which most scholars class as gharar-laden (leading to the cooperative Takaful alternative), while others permit conventional insurance in the U.S. under necessity given legal mandates. Derivatives, naked short selling, and many crypto products (unbacked leveraged tokens, ambiguous yield programs) fail the same test. AAOIFI's standards operationalize gharar as requirements: subject matter must exist, be owned, be deliverable, and be precisely described; price and terms must be known.

The consumer translation: if you cannot state exactly what you are buying, what you will pay, and what you will receive, the contract likely has a gharar problem.