The American Journal of Islamic Social Sciences 29:3154

Naẓarīyat al-Mukhāṭarah fī al-Iqtiṣād al-Islāmī: Dirāsah 
Ta’ṣīlīyah Taṭbīqīyah (Risk Theory in Islamic Economics)

Adnan	Abdullah	Muhammad	‘Uwaidah

Herndon,	VA:	The	International	Institute	of	Islamic	Thought,	2010,	
pbk.	351	pages.

“Risk”	is	one	of	the	key	concepts	in	understanding	modern	Islamic	eco-
nomics. Its importance does not only stem from its place in the classical 
fiqh,	but	also	from	its	close	relation	to	discussions	in	modern	Islamic	fi-
nance about permissible ḥalāl (gain) and ribā (usury). Risk	has	been	seen	
as one of the key differences between ribā and non-ribā transactions and 
conventional	finance	and	Islamic	finance	mechanisms.	While	modern	eco-
nomics aims to eliminate the risk entirely, principles of Islamic economics 
aim to establish a balance among parties through risk sharing. Because 
gaining money from money is ḥarām,	 the risk issue is more critical in 
debt-based	finance.	In	this	context,	it’s a controversial issue among Islamic 



155Reviews

finance	scholars	that	Islamic	banks	take	several	precautions	to	complete-
ly	eliminate	the	risk	from	their	transactions	–	although	Islamic	finance	is	
known	as	a	profit-loss-sharing	system.

Adnan ‘Uwaidah’s book Risk	Theory	in	Islamic	Economics, which is 
based	on	his	doctoral	dissertation,	aims	at	theorizing	risk	in	a	legal	and	
economic framework and explaining its functions. The book, which claims 
to	be	the	first	academic	book	about	risk	from	the	Islamic	legal	point	of	
view, consists of an introduction and six main chapters. The author has a 
PhD from the Department of Islamic Economics and Islamic Banking at 
Yarmouk University in Jordan, which is one of the leading institutions in 
this	field.	He	shows	his	mastery	of	the	topic	through	his	academic	approach	
to the issue, use of legal terminology, and a vast bibliography that includes 
classical and modern resources. 

The	author	starts	the	first	chapter,	entitled	“Essence	and	Notion	of	Risk	
Theory”	by	reviewing	the	related	literature	and	pointing	out	his	own	con-
tributions. Then, he focuses on the risk theory from the perspectives of 
fiqh, economics, and Islamic economics and explains the basic concepts 
that are commonly referred to in the rest of the book. Then, in the sec-
ond	chapter	entitled,	“Foundations	of	the	Risk	Theory,”	he	develops	a	risk	
theory	using	evidence	from	the	Qur’ān, Sunnah, legal maxims (al-qawā‘id	
al-fiqhiyyah),	legal	texts,	and	economics.	He	presents	the	goals	and	condi-
tions of the theory and provides some examples from the classical fiqh. 
The	third	chapter,	“Implementations	of	the	Risk	Theory	in	the	Fiscal	Fiqh	
Tradition,”	is	about	risk	applications	in	fiqh	al-mu‘āmalāt	(Islamic juris-
prudence of transactions). The author investigates different types of risk 
in different legal contracts such as bay‘	(sale), ijārah (lease), and different 
types of partnerships. In this chapter, he also examines the relationship 
between risk and ribā.	The	fourth	chapter,	“The	Risk	Theory	and	Distribu-
tion,”	deals	with	the	relationship	between	risk	theory	and	wealth	distribu-
tion – concentrating on the role of the risk theory in wealth distribution, 
responsibility	of	expenditures,	and	the	distribution	of	profits.	The	author	
argues that the risk is one of the legal foundations of wealth distribution. 
In	the	fifth	chapter,	which	is	entitled	“Implementations	of	the	Risk	Theory	
in	the	Banking	Transactions,”	the	author	examines	the	theory	as	it	affects	
modern	Islamic	banking	in	practice.	He	evaluates	transactions	such	as	ven-
ture capital, savings accounts, investment accounts, murābaḥa (cost-plus 
financing),	tawarruq (reverse murābaḥa), mudāraba	muzdawijah	(double 
mudāraba), ijārah	 (renting/leasing),	 al-i‘timād	 al-mustanadī	 (letter of 
credit), and khitāb	al-damān (bank guarantee) from the risk perspective. 
In	the	last	chapter,	“The	Implementations	of	the	Risk	Theory	in	the	Cap-



            The American Journal of Islamic Social Sciences 29:3156

ital	Markets,”	the	author	analyzes	stock	market	transactions	such	as	al-
taḥawuṭ (hedging), al-khiyārāt	(options), al-mustaqbaliyāt	(futures), and 
al-muqāyadhāt	(swaps)	and	criticizes	some	current	applications	of	such	
transactions from the risk perspective, and he deals with the concept of 
“speculation.”	In	the	concluding	chapter,	‘Uwaidah	summarizes	the	results	
of the study in related contexts such as Islamic banking and capital market 
transactions. Lastly, he shares his practical recommendations regarding the 
risk theory with the readers.

The author’s risk theory is based on the legal maxims outlining the 
relationship	between	risk	bearing	and	profit	such	as	al-kharāj	bi	al-ḏamān	
(any	benefit	must	be	accompanied	with	liability),	al-ghunm	bi	al-ghurm	
(earning	profit	is	legitimized	only	by	risk	sharing)	–	also	on	rights	responsi-
bilities,	deed	reward,	and	investment-return	balance.	His	approach	is	paral-
lel with the classical legal framework. According to the classical approach, 
there should be direct or indirect risk bearing in transactions for ḥalāl	(per-
missible)	profit,	otherwise	the	profit	becomes	ḥarām	(impermissible).	Risk	
is the main difference of a typical commercial transaction from ribā,	which 
does not include return risk in theory. The author correctly submits that the 
maın	wisdom	for	the	impermissibility	of	ribā	in investment is lack of the 
risk	element	(131).	Thus,	risk	is	necessary	for	the	al-salāmah	al-shar‘iyyah	
(legitimacy) of the investment contracts, and there is a close relationship 
between	the	deservedness	of	profit	and	risk	(15).	Through	relevant	exam-
ples, he tries to present a holistic and logical framework on the basis of jus-
tice, which is very important and constitutes a positive contribution to this 
field	of	study.	Not	only	does	he	deal	with	legal	matters,	but	also	with	issues	
that relate to fair distribution of resources, justice, and social functions.

It is pertinent to add that ‘Uwaidah’s work is not only a descriptive but 
also	an	analytical	and	critical	study.	The	author	sometimes	criticizes	exist-
ing theories and practices from the legal point of view, and he shows with 
his evaluations that he has a substantial fiqh	background. Also, he evaluates 
and	analyses	counter	opinions	successfully	(159–72).	It	is	important	to	add	
that his conclusions are moderate and based on evidence and logic, evalu-
ating	the	subjects	through	classical	and	modern	examples.	Occasionally,	
he refers to Western researchers and the place of risk in the conventional 
banking	system	(77–82,	134–35).	In	addition,	his	evaluation	of	modern	
Islamic	financial	institutions	and	transactions	in	the	stock	markets	makes	
a	very	significant	contribution	to	the	literature.	At	the	end	of	the	book,	he	
makes a very important point in relation to sustainable practices in the 
Islamic	banking	industry.	He	observes	that	instead	of	debt-based	products,	
risk	bearing	and	profit-loss	partnerships	will	ensure	justice	and	contrib-
ute to increased output and development. Seeking a risk balance, Islamic 



157Reviews

banks can free themselves from murābaḥa domination through well-struc-
tured equity-based products, which are in line with Islamic principles and 
in the long run contribute to the social and economic well-being of society. 
On	the	other	hand,	if	the	author	had	taken	a	step	further	to	illustrate	some	
of his excellent theories contained in the book – using charts and relevant 
statistics from different Islamic banks’ risk mitigation practices – it would 
have added more value to the book. Such added value is essential in con-
temporary	research	in	Islamic	finance	to	bridge	the	gap	between	theory	and	
practice, and establish the relevance of the research to the practice of risk 
management	in	the	Islamic	finance	industry.

This	kind	of	contribution	is	very	important	in	other	fields	of	Islamic	
finance,	because	without	a	holistic	approach	and	theoretical	perspective,	it	
is impossible to see the big picture of current trends in the industry. Thus, 
rather than a pure legalistic and minimalist perception, we need holistic 
approaches	to	issues	in	the	field	of	Islamic	finance	in	order	to	arrive	at	sus-
tainable decisions that will positively impact current practices. Moreover, 
analyzing	the	new	Islamic	finance	contracts	from	the	risk	perspective	is	
very	important,	because	without	this	approach	it	may	be	difficult	to	dif-
ferentiate these contracts from others that are commonly used in the con-
ventional banking system.

‘Uwaidah’s study is very helpful for researchers and practitioners in the 
Islamic	finance	industry	and	Islamic	law	in	general	to	understand	the	im-
portance	of	risk	in	financial	transactions.	This	book	opens	the	gate	for	new	
and	more	specific	studies	on	the	concept	of	risk.	A	similar	work	produced	
in	English	on	the	Islamic	finance	alternative	–	Risk	Sharing	in	Finance:	
The Islamic Finance Alternative	by	Zamir	Iqbal,	Abbas	Mirakhor,	Hossein	
Askari,	and	Noureddine	Krichene	–	has	just	been	published.	Understand-
ing	of	risk	in	Islamic	finance	is	highly	important,	and	we	need	more	studies	
on this subject to be produced by hardworking scholars like ‘Uwaidah and 
others.	For	these	reasons,	I	would	wholeheartedly	recommend	the	transla-
tion of the book from Arabic to English as a great opportunity for English-
speaking people to increase their understanding of this subject.

Ismail Cebeci 
Research	fellow	in	the	Harvard	Law	School	Islamic	Legal	Studies	Program

Cambridge, Massachusetts

http://www.amazon.com/Risk-Sharing-Finance-Islamic-Alternative/dp/0470829664/ref=sr_1_1?ie=UTF8&qid=1337536081&sr=8-1
http://www.amazon.com/Risk-Sharing-Finance-Islamic-Alternative/dp/0470829664/ref=sr_1_1?ie=UTF8&qid=1337536081&sr=8-1