Clear Image Concerning the Legality of Prize Bonds

Abstract

Islamic Shariah is a vital part of ‘Deen’ Islam. It outlines the prescribed conduct of life in the light of Islam. Financial transactions, regarding what we pay and what we receive, form a significant part of our social conduct and, for a Muslim, should be in accordance to Islamic beliefs and morals. This paper presents a clear image concerning the legality of prize bonds and lottery tickets from an Islamic perspective. It clears all the doubts and gives sound reasoning for the treatment of both subjects according to Islamic Shariah. A comparison has been drawn between the conventional bond system and sukuk (Islamic bonds) as well.

Lotteries

The practice of lotteries became rather common during the fifteenth and sixteenth century, but at that time was employed to raise funds and charities for the poor. Lotteries are run by large corporations, like LottoTM, distribute their tickets through their agents. Afterwards they take a few months to randomly pick out a winner who is awarded the total of the amount collected over the time period. Since then, the agitation has stirred up exponentially and quite expectedly considering tales of young “lottery” billionaires are on the rise. The media shows a mass appeal for lottery tickets from the optimistic and confident community, wishing to turn their lives around on chance. Ethically, one might not find the obvious flaw in all this but Islam has quite explicitly deemed lotteries to be haram.

Lottery in Contrast to Gambling

Islamic law criminalizes any act of gambling whether it’s concerning betting on cards, horse-racing or any sports activity. Hazrat Muhammad (PBUH) decreed all forms of gambling to be prohibited and the four jurists, Hanafi, Maliki, Shafi’i and Hanbali, have confirmed. Allah stresses on the prohibition on gambling in Surah Ma’idah of the Holy Quran.

Quran about Misra

“They ask you [Muhammad] concerning wine and gambling. Say: ‘In them is great sin, and some profit, for men; but the sin is greater than the profit.’… (Quran 2:219)

“O believers, wine and gambling, idols and divining arrows are an abhorrence, the work of Satan. So, keep away from it, that you may prevail. Satan only desires to arouse discord and hatred among you with wine and gambling, and to deter you from the mention of God and from prayer. Will you desist?” (Quran 5:19-20)

Prize Bonds

A bond can be defined as a certificate of contract between the issuer and the bearer; in which the issuer is dictated to pay the bearer an agreed amount after the age of maturity of the bond. Other than the interest amount, prizes from “Lucky Draws” are also sometimes promised. The dealing of bonds has been dealt by a lot of religious organizations, including the Islamic Fiqh Council who has provided their verdict on the Islamic legality of conventional bonds: Any bond which pledges an assurance to compensate the face value along with the interest, or any provisional settlements, have been prohibited in Islam, according to Islamic Shariah. The Council has also decreed bonds will still be haram even if they are given different names, such as “savings” or “investment documents”.

Sukuk

Sukuk, also known as Islamic bonds is the modern solution introduced by Islamic economists that is replaceable with traditional bonds. Sukuk goes hand in hand with the Islamic shariah and prohibits Riba (interest), which is a primary factor in traditional bond system. Islamic bonds work by a guideline that is considerably different from the conventional bonds as sukuk is an asset given by the investor to the interested party for a limited period of time, which in return gets a share of annual profit (loss). After the timeframe is completed, the investor gets back the asset with original nominal value.

Scholars believe that prize bonds are prohibited in the light of Islam because they yield the horror of Riba. It is argued that bond system is basically the money being lent to financial institutions and the amount of fixed income earned on this is haram. Moreover, by adding the word ‘prize’ to it, the only difference caused is that instead of distributing the interest among all the lenders (bond purchasers) the bank gives the whole interest amount accumulated to the one person who wins the draw. Secondly, Islamic scholars argue that prize bonds may even be a type of gamble and thus haram because Allah in Quran says: They ask you about wine and gambling. Say, ‘In them is great sin and [yet, some] benefit for people. But their sin is greater than their benefit.’ And they ask you what they should spend. Say, ‘The excess [beyond needs].’ Thus, Allah makes clear to you the verses [of revelation] that you might give thought. (2:219)

This ayat refers to the perks of earning an easy way through gambling but with a mild contrast it talks about the spiritual failure too, in order to warn the people of the consequences on this great sin. Prize bonds are seen as a gambling scheme since the chance that who gets to win the draw clearly depends on luck. In addition, the speculation done by all the bond purchasers, wanting to make a profit out of nothing, is also labeled prohibited in accordance to the Islamic shariah.

Islamic shariah has no regards for uncertainty and when people refer to their phones or newspapers to check the draw list, they all are very much involved in the state of uncertainty about winning or losing. This is so because there is no concrete evidence about them winning or losing but just their belief on mere luck. Sukuk are certificates issued in the name of the owner or bearer in order to establish the claim of the certificate owner over the financial rights and obligations represented by the certificate (Usmani, 2007). Islamic fiqh has derived a halal alternative to bonds in the form of sukuk which give the holder/buyers rights and financial ownership of an asset.

They do not represent a debt and therefore the amount payed on its behalf is not a fixed interest but rather a variable amount of profit/loss borne by the use of that asset. There are numerous forms of sukuk based on murabaha, musharka, ijarah, etc. Fixed income securities, as present in today’s conventional market, are not permissible under Sharia. They are also a liquidity management tool for Islamic banks and insurance companies (Amrani, Hamza, Mostapha, 2017). As they are negotiable, unless the sukuk structure does not include murabaha and other forms that have some debt involved.

There are fundamental and key differences between sukuk and bonds used by conventional banks. Conventional bonds are only a recognition of debt whereas sukuk are instruments of sharing of gain and loss generated by the performance of an underlying asset (Amrani, Hamza, Mostapha, 2017). Conventional bonds are a certificate that enforce the ownership of a debt given, which the debtor is obligated to pay a fixed rate of interest or return on. Sukuk on the other hand is based in a system of profit/loss and shows the ownership of parts of an asset that can yield profit or loss.

El-Mosaid & Boutt also confirm that the performance of the sukuk stock indexes is significantly higher than that of their traditional counterparts. Although it is true that sukuk involves a higher risk since its return is upon a profit/loss basis and the amount of return is variable because of the same characteristic whereas conventional bonds have no such risk attached to them because of their inherent nature which is based on interest/Riba; Riba is prohibited in Islam. The difference between the means of these two forms of securities are positive, indicating that Sukuk securities tend to yield more than conventional bonds (Karats and Nienhaus, 2015).

Lottery Tickets under Islamic Shariah

Islamic financial transactions must be free from Riba, Gharar and Maysir, this is not only due to inherent injustice in this mechanism but they also create social harm in the form of inflation, unemployment, volatility, instability, and environmental degradation (Paldi, 2014).

The significant distinction between conventional finance and Islamic Finance can be the Prohibition of Riba, Maysir and Gharar. These Shariah prohibited measures will be discussed in the light of Quran and Sunnah.

The term Gharar literally means risk. Gharar in the language of a jurist means that the outcome of something is unknown. Hussain and Pasha (2011) define Gharar as the element of uncertainty or hazard caused by ambiguity due to the lack of inflammations, risk, subjecting oneself to peril and risk. Al-Taani (2013) and Al- Dareer (1997) state that the doubt over the existence of the subject matter of the contract in the jurisprudence term Gharar means unknown, doubtful and uncertainty. Uncertainty is also defined as the event of which the probability assessment is not possible.

Gharar Fahish (Excess Gharar) is the reason Gharar Sales are prohibited in the light of Islam. Al-Hadith has provided us with multiple examples of how excess risk in transactions has a negative effect on our society. The Holy Prophet (S.A.W) on many occasions forbade many transactions which included Gharar. Ahmad and Ibn Majah narrated on the authority of Abu-Said al-Khudriy that: The Prophet (S.A.W) has forbidden the purchase of the unborn animal in the mother’s womb, the sale of the milk in the udder without measurement, the purchase of spoils of war prior to distribution, the purchase of charities prior to their receipt, and the purchase of the catch of a diver.

Gharar Yasir (Light Gharar) is the minimal level of risk or uncertainty that is present in all transactions and can be accepted in the light of Shariah. On this note, Nordin et al. (2014) argues, that even though Muslim scholars differ on the permissibility of forward contract because of Gharar, the value of the contract is derived from the values of underlying assets such as commodities, equities and currencies. They further argue that not all contracts containing the element of Gharar void the contract. By analyzing crude palm oil forward contracts in Malaysia, they conclude that the issue of Gharar that exists in forward contracts does not void the contracts.

Furthermore, a significant number of scholars present the idea that Gharar is one of the major branches of gambling due to the risk involved in the transaction. Lotteries, on the other hand, can be directly linked to gambling or Maysir. Hameed (2009, p.44) defines Maysir as gambling, also, any form of business activity where monetary gains is derived from mere chance, speculation or conjecture.

Playing lottery comes under the categorization of gambling and thus is considered unlawful according to Islamic shariah, making it a haram way of earning. So, the question now is, why is gambling considered religiously illegal?

Gambling false under the reign of the word Maysir, an Arabic root word which has three conditions (I)easily available wealth or acquisition of wealth (ii) by chance, whether or not it (iii) deprives the other’s right. When a person plays lottery and wins he will be getting a huge amount of money, completely on the basis of chance. Additionally, he will be depriving other ticket buyers of the money they paid for the ticket since they won’t be able to get it back once the lottery is won.

There is a strict reason why playing lottery instead of just winning lottery is considered unethical. When a person buys a lottery ticket, whether he wins it or not, he intends to wins it and Allah in Quran says: ‘Whether ye hide what is in your hearts or reveal it, Allah knows it all: He knows what is in the heavens, and what is on earth. And Allah has power over all things’ (4:29). Thus, the mere intention of gambling is considered haram. Secondly, since no person knows which ticket holder is going to win, the gamblers are all in the state of uncertainty which in itself is another prohibition of Islamic beliefs. Ayyub (2017) states according to Pakistan’s Federal Sharita Court (FSC), a lottery in which coupons or tabs are given and inducement or incentives are provided by an uncertain and unknown event depending on chance, or disproportionate prizes are distributed by the drawing of lots and where a participating person intends to avail themselves of a chance at prizes is repugnant to the tenets of the Shariah.

The research conducted was entirely based on secondary data, that has been published. As the research aims to answer two different questions regarding legality of prize bonds and lottery tickets, two different methodologies were used for research purposes.

Four published research articles were gone through to analyze the basis on which lottery tickets have been declared haram. The categorization of lottery tickets under Maysir(gambling) is fully explained in reference to the data collected from articles. Published works chosen didn’t just contain evidence from Quran and Ahadith to prove the legality of lottery tickets but also presented a critical view for the reasoning on account of which they were ruled Haram. The data collected uses vast Islamic terminology like Maysir (gambling) and Gharar (risk) for the purpose of providing a clearer and more precise understanding of the matter.

Regarding the legality of bonds, the methodology used varies slightly. Firstly, three articles have been used to draw analysis for legality of conventional bonds of modern banking system. The extraction of content highlights similarities and differences between conventional bond system and Islamic bond system, in order to sum up reasons that legalize sukuk. Secondly, on account of limited content being available on legality of prize bonds, the research has been done in the light of Quran Analysis. Relevant verses have been chosen from the holy Surahs and tafsir of the verses by experienced Islamic scholars has been looked up to come up with the analysis.

Conclusion

After thorough and extensive study of numerous articles, Quranic verses and Ahadith of the Prophet (P.B.U.H), the research team has come to definitive and concrete rulings regarding the legality of modern bond systems and lottery tickets. The research team found compelling reasons and evidence to certify that if the bank dealing with bond transactions uses interest or Riba as a financial payback or return to bond holders, the possession, usage and dealing of such bonds is going to be considered haram. However, Islamic bond system of Sukuk is free from all the religious constraints that make conventional bonds religiously illegal for Muslims i.e. Riba. The past researches and consensus have all yielded the same shocking results that sukuk have higher yields than conventional bonds. Therefore, this makes them not only religiously and spiritually superior to conventional bonds but also provide an economic advantage.

Apart from consulting past researches, the Quran has also provided a comprehensive insight into the matter of prize bonds. Islamic scholars, after careful consideration, have come to the conclusion that whether you name it a conventional bond or add the word ‘prize’ to it or whether you pay the interest to one single person or distribute it among all the bond holders, it will remain haram. In addition to this reasoning, because prize bonds choose the winner through a lucky draw, this process heavily involves element of Maysir (Gambling) and Gharar (Uncertainty) which makes it a doubly haram endeavor.

The two major reasonings behind the prohibition of lottery tickets in Islam is Gharar and Maysir. Maysir is defined as gambling and gambling is absolutely haram and Gharar is a component of gambling because it involves extremely high levels of risk and uncertainty. It is based on mere chance which is one of the three conditions Maysir. Pakistan’s Federal Sharita Court (FSC) states that any transactions involving disproportionate returns and unknown events and chances are regarded and declared as haram and prohibited in Islam. Some people may argue that they have not won or even expect to win in lotteries therefore it is not haram but Islamic scholars and our research and review of past papers has proven with concreteness that this argument is invalid and whether you win or not, any participation in lotteries is haram.