If you’re looking at getting sharia compliant financing to buy some property, the more knowledge you have the better for practicing Muslims and people of other faiths. Some of the terms used in this type of Islamic financing might seem unfamiliar at first.
The definition of Gharar is literally uncertainty. The word is Arab. It’s a broad concept that involves different scenarios such as:
- Suspicious claims of ownership.
- When a commodity isn’t defined.
- Speculation where a positive outcome depends on an excessive amount of uncertainty and unshared risk.
Adding to that, Islamic financing dealings that involve Gharar are harmful to openness and certainty in transactions involving real estate.
How Gharar Works in A Sharia-Compliant Financing Model
Ijara-wa-Iqtina is a lease and ownership model that checks all the boxes to avoid both riba and risk that’s shared unequally. This process is based on assets rather than credit. It’s been in use in the United States for two decades and it incorporates a lessor to lessee relationship rather than one that has a creditor and debtor. This is an Islamic financing model that complies with sharia law which forbids Gharar.
Understanding how to avoid this means having the knowledge necessary to identify gharar.
It is divided into three types.
- The first type occurs when it’s not possible to control exchange counter values.
- Inaccurate product information is the second type.
- The third type results from unnecessarily complicated contracts. There are several different reasons for this including combining two different sales into one or several interdependent contracts.
There are also degrees of gharar .
- Minor Gharar. The degree here isn’t severe. In fact, it doesn’t even cause any kind of considerable damage to any of the counterparties or incur losses.
- Mild Gharar. This is neither a large or small amount but it could be enough to render a contract void.
- Major Gharar. This amount will render a contract void because important material information or the subject matter is not compliant.
Here’s a little more information on how Ijara-wa-Iqtina works to avoid unequally shared risk.
Staying sharia compliant is a priority. To that end, the Trust in the system we use is the only owner of the property and takes on all the gain or loss. In this way, this sharing of loss or gain relates directly to Musharaka transactions.
Ethical Ijara is two cryptocurrency tokens that facilitate the ijara sharia-compliant rent to own model