Islam unambiguously prohibits gambling. All acts of betting, wager and gaming fall under prohibited gambling. The prohibited gambling is an agreement between two (or more) parties whereby each party pledges a certain amount to the other, depending on the outcome of a stochastic process (a draw, race, match, etc.), which determines a winner in such a way that all the non-winners collectively lose an amount equivalent to the gain of the winner. There are three important characteristics of gambling, which collectively make it prohibited: (1) contribution of money; (2) an independent stochastic process to pick up the winner; and (3) loss of capital for non-winners.
All the three factors must be there for a phenomenon to be deemed gambling. Let us consider three cases:
Case 1: Two people pool their money to invest in a business activity and there is no independent stochastic process (other than the business itself), then even if the contributing parties lose their capital, the phenomenon will not be considered as gambling. It is indeed a legitimate business activity in which more than one person participates. If this is a partnership based on shirka or musharaka then it is the requirement of such a partnership that in the event of loss the two partners must be treated pari passu. Hence, in such an arrangement a loss will be inflicted upon the partners in accordance with their investment shares and there will be no one partner gaining at the expense of the other. This is certainly not prohibited gambling but a legitimate business arrangement.
Case 2: The two parties bet on a stochastic process (for example, the outcome of a cricket match) without involving any money. The result of the stochastic process will determine a winner but without any of them gaining a monetary benefit at the expense of the other. Again, this is not a case of gambling.
Case 3: The two parties pool their money for investments and the investment manager (which could be one of the investors or an independent party) gives a prize to one of them based on a draw. The prize money comes from independent sources and hence has no bearing on the investments made by the two parties. In this case, although the first two factors (i.e., pooling money and the draw based on a stochastic process) are present, the third factor (i.e., the loss of capital) is absent. Hence, this is not a case of gambling either.
In conclusion, for any arrangement to fall under the prohibited gambling all the above three factors must be present in a transaction; otherwise it may not necessarily be the prohibited gambling.
In light of the above, it is interesting to see if some of the common practices and products fall under the definition of gambling. In informal sectors, there are different types of “committees,” one of them being a “lucky committee.” Although there are different variants of lucky committees in practice, all of them have the following common features:
n A group of people contribute money to a common pool on a frequent basis (daily, weekly, monthly etc.);
n A draw takes place with the same frequency as that of the monetary contributions;
n One lucky member of the group whose name or number is drawn successfully receives a fixed amount of money, normally equal to or less than the common pool of contributions for the period for which the draw takes place;
n Once a person wins, they cease to contribute further amounts for the period of the committee;
n Other members of the group continue until their names are drawn successfully; and
n The committee is wound up when all members of the group have received a fixed amount.
This is an interesting arrangement, as no one in the group suffers a total loss of the capital contributed by them. Everyone does receive a fixed amount, although some receive more than what they contribute and others receive less than their contributions.
In this particular case, all the three factors which contribute to the prohibited gambling are present. In this case, however, losers lose only part of their total individual capital contributed.
Another committee arrangement, mostly used by business people for their working capital financing, involves bidding for the committee pool. It works like this:
n A group of traders and other businessmen agree to contribute a fixed amount on a frequent basis;
n The pooled money is bid by the individual members on a frequent basis;
n The frequency of bidding may differ from the frequency of contributions (e.g., the contributions may be made on a daily basis while the bidding may take place on a weekly basis);
n The member who is willing to receive the lowest amount wins and claims the discounted pool;
n The successful bidders do not have any further right of bidding (i.e., they can receive money only once);
n All members including the successful bidders continue to contribute to the pool for the duration of the committee; and
n Once all the committee members have claimed the pool money, the committee ceases to exist.
For example, a group of 50 traders and businessmen enter into a “working capital committee” to contribute Rs1,000 on a daily basis to bid at the end of the week for the amount pooled for seven days (which should be Rs350,000). Those members of the group, who are looking for cash for their business bid for the pool. The bidding may start from a slightly discounted figure of say Rs345,000. The member who is most desperate to receive the money will be willing to receive the least amount. Thus, if there were five bids of Rs345,000, Rs343,000, Rs340,000, Rs339,000 and Rs338,500, the one bidding for Rs338,500 will win and receive this much money from the total pool of Rs350,000. The remaining amount (Rs11,500) will go into a surplus pool.
This is an interesting arrangement. At first glance, it seems as if this is not in compliance with shari’a, as the members may receive less than what they contribute, and the difference may be deemed as riba or the prohibited interest. However, if the terms and conditions of the arrangements are spelled correctly, this arrangement can serve as a great tool for developing working capital financing products offered by Islamic banks. Indeed, working capital financing has proven to be an Achilles’ heel in Islamic banking, and this home-grown practice can be adopted, with modifications to develop a shari’a compliant product for meeting the liquidity requirements for running medium and small enterprises.
There are some other plain vanilla committees that are primarily formed by women as short-term saving plans. As these arrangements involve nothing but collective savings, without any complex structures, they by and large are in line with shari’a requirements.
The writer is shari’a advisor to a number of banks and financial institutions and can be contacted at [email protected]
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