Risk, uncertainty and the market: a rethinking of Islamic and Western finance

Abstract

AbstractThis paper aims at providing an account of the Islamic conception of Gharar in contrast to the current Western conceptualisation of risk, using the respective financial legal frameworks of both as the criterion. One of the more decisive stakes of the difference in approach between the Islamic and contemporary Western legal orders today concern the regulation of financial markets; specifically, the definitions of risk and uncertainty – crucial characteristics of modern economies – can be understood as preferentially related to specific features of Islamic law. In the end, according to Knight, money-creation processes are centred on uncertainty. Without uncertainty, there is no profit. This is why, although different at first sight, Islamic finance with its understanding of permissible Gharar and Western finance with its uncertainty-aversion trend have become more resilient, especially since the financial crisis (2007–2010).