Controls on Gharar in Financial Transactions — practice questions

Correct answer: C. Clause 4: Gharar violates a transaction only when four conditions are met: (a) it occurs in an exchange-based (commutative) contract or one of that nature; (b) it is excessive; (c) it relates to the primary subject matter of the contract; and (d) it is not justified by a Shari’ah-recognised need. Gharar in donation contracts, medium or minor Gharar, Gharar in a corollary, and Gharar justified by need do not vitiate the contract (Clauses 4/1 to 4/4).

Correct answer: A. Clause 4/1: Gharar affects exchange-based contracts and similar contracts, such as sale, lease and partnership, whether it lies in the form or the subject matter of the contract, whereas it does not affect donation contracts such as gifts and wills. Uncertainty over quantity in a sale (Clause 5/2/1/5), an unspecified lease period (Clauses 4/2/1 and 5/3/1), and indeterminate profit shares in a partnership are therefore vitiating, but a gift remains valid.

Correct answer: D. Clause 4/2: Excessive Gharar dominates the contract and is capable of leading to dispute, e.g. selling fruits before production, leasing for an unspecified period, or Salam in a commodity not usually available at delivery; it nullifies the contract. Minor Gharar is hardly avoidable (e.g. selling a house without seeing its foundations). Medium Gharar lies between them, e.g. selling underground commodities or goods that cannot be known unless broken, leasing fruit trees, Ju’alah and fixed-term Mudarabah; it does not affect the contract.