Theory of Gharar and its Interpretation of Risk and Uncertainty from the Perspectives of Authentic Hadith and the Holy Quran: Review of Literature

The inconclusive definition of Gharar as risk and uncertainty can be commonly found in the contemporary literatures. The difference in the meaning of Gharar is generally thought to be due to the difference in the jurisprudence point of views. The current practice is that there is no standard in defining the terms. The study employs content analysis approach to review available literature on the term Gharar. The finding of this study introduces steps in defining terminology namely; dictionary definition, Arabic linguistic definition and jurisprudence definition. However, the philosophy of risk as stated in the Holy Quran and Hadith differs from the concept of risk in conventional finance. The finding reveals that risk in Islamic banking refers to a wider interpretation covering the concepts gharar, mysir, mukhatarah, al ghunm bil ghurm and al kharajbil daman than the element of uncertainty as in the conventional finance. This contributes to the existing body of knowledge in the area of risk elements in Islamic contracts.