Revisiting the Principles of Gharar (Uncertainty) in Islamic Banking Financing Instruments with Special Reference… 33 Abstract One of the significant features of Islamic banking is the elimination of riba and gharar. However many problems arise in some of Islamic banking financing instruments when they are claimed to contain significant elements of gharar thus held unacceptable in certain Muslim countries. Among these instruments are Bay al-Inah and Bay al-Dayn. Currently, Bay al-Inah is not accepted in some countries such as the Middle East countries as it is regarded as part of interest-based transaction. However, in Malaysia, Bay al-Inah has been formalised as a permissible practice and is has emerged as the most important mode of transactions that stimulates the growth of Islamic transaction in Malaysia, which finally comes across the globe to be among the most successful Muslim state in the development of Islamic Finance. On the other hand, Bay al-dayn or the sale of debt is not unanimously accepted or validated by Muslim scholars. Even though some scholars allow it in all forms and aspects, the others either disallow it entirely or allow it under certain circumstances and with certain clauses or conditions.The paper will discuss at length on both contracts and the legal implications of the presence of gharar on the validity of these contracts. The views from the jurists will be critically examined to revisit the existence of gharar especially in these two Islamic banking instruments namely bay al-dayn and bay al-inah. Keywords: Islamic Financial Instruments, Contracts, Gharar (Uncertainty), Bay al-Inah and Bay al-Dayn, Islamic Banking Products Revisiting the Principles of Gharar (Uncertainty) in Islamic Banking Financing Instruments with Special Reference to Bay Al-Inah and Bay Al- Dayn Towards a New Modified Model 1 Siti Salwani Razali * 1. IntroducƟon Gharar is an Arabic term which literally means uncertainty, ambiguity, risk, danger or peril 2 . Technically, Gharar refers to uncertainty in a contract that may lead to unknown consequences or results, whereby one or both parties to the contract suffer injustice. 3 Gharar is synonymous with al khida or fraud. 4 Mohammed Obaidullah states that Islamic scholars have broadly defined gharar in two ways: “First, gharar implies uncertainty. Second, it implies deceit”. 5 Sami Al Suwailem refers to a gharar transaction as “equivalent to a zero-sum game with uncertain payoffs”. 6 The founders of the various schools of Islamic thought have defined gharar in the following words: 7 Hanafi—“that whose consequences are hidden” Shafii—“that whose nature and consequences are hidden” or “that which admits two possibilities, with the less desirable one being more likely” Hanbali—“that whose consequences are unknown” or “that which is undeliverable, whether it exists or not.” A major factor that contributes to the existence of gharar is inadequate information which increases uncertainty. This occurs when elements and sub-elements of the contract are either absent or not well defined. For instance, gharar may occur when the subject matter of a contract is non- existent, not in possession of the owner, not deliverable, * Siti Salwani Razali, Associate Professor, Department of Business Administration, Kulliyyah of Economics & Management Science, International Islamic University, Kuala Lumpur, Malaysia 1 This paper is an extended version of the paper which have been presented in the “6th International Islamic Finance Conference” at J.W Marriot Hotel Kuala Lumpur in October 14th,2008.