[UtidaBrar]

Here in the UK you can get cheaper gas and electricity (?) if you opt for a tariff that is fixed until say February 2013. Therefore if the price of energy increases you are OK since you are on a fixed tariff. However if the price of energy falls than you lose out.

My gut feeling tells me that the Shariah would not allow this. Can anyone give me a definitive answer?

[soipguibbom]

Here in the UK you can get cheaper gas and electricity (?) if you opt for a tariff that is fixed until say February 2013. Therefore if the price of energy increases you are OK since you are on a fixed tariff. However if the price of energy falls than you lose out.

My gut feeling tells me that the Shariah would not allow this. Can anyone give me a definitive answer?

I see nothing wrong with this from what you described. Now this is definitely not a forward purchase (bay as-salam) as it would require payment upfront and the gas/electricity to be delivered later. In this case the the actual transaction is happening every month but the rate is agreed upon from before.

To me it looks like it is merely a promise from which one can leave at any time. Now the question is can one be held obligated over this contract of promise for the specific period of time. I believe Mufti Taqi saheb in the AAOIFI standards says that a promise like this is enforceable. However a promise in its original sense is not enforceable but Mufti Taqi saheb I believe has made an exception in the AAOIFI standards with regards to contractual promises. Mufti Muhammad bin Adam explained it to me (and later I saw in the AAOIFI standards as well) that this exception was made because it has become customary in business practices and business dealings will break down if such promises are not enforceable. However this is my application of the concept and I could be wrong in my understanding it and applying it to this case. However if the customer can leave any time he wants then I don't see anything wrong with it. The whole issue is whether or not one can be obligated to stay with such an agreement.

Why you might think this is not alright is because the way you described it you almost made it sound like insurance, for example when you were saying "one loses out". But if the price of anything drops after you purchase it then one loses out. I agree in this case its a bit different because purchase hasn't happened. But if one willingly buys at a higher rate than market then its not anyone's fault. As for in the case that if the price drops and the customer wants to go back on the agreement but one is prevented due to the "promissory" contract, then we are back at the issue of enforceable promise. I am inclined towards the opinion of Mufti Taqi saheb.

However even in normal utilities contracts there are elements of clear gharar which would render the contract problematic but such things are overlooked. For example one uses gas throughout the month, without the quantity of gas being fixed in the contract. Yes the rate is fixed but not the quantity. The absolute correct way of doing it would be a person agrees to buy a certain fixed amount of gas, electricity or water from the utility company for a certain fixed price. However this is not happening. The rate is agree upon but the quantity is and total price (bill) is only determined at the end of the month when you see the bill. So the quantity and price was uncertain but only the rate was certain. This I am quite sure is gharar, but it is clearly being overlooked due to customary business practice.

The case when a contract similar to the one you described would be problematic is if one was paying a certain amount of money for the option to buy at a future date at a certain price. This transaction would be complete insurance.

[UtidaBrar]

for the response, and for for enlightening me on the view of Mufti Taqi saheb.

What does gharar mean? Also is there any literature you can recommend about this topic, considering I am not a financial expert.

[soipguibbom]

for the response, and for for enlightening me on the view of Mufti Taqi saheb.

What does gharar mean? Also is there any literature you can recommend about this topic, considering I am not a financial expert.

Assalamu aliakum,

Gharar means uncertainty. In Islamic finance it refers to insurance type contracts where the exchange is guaranteed from one side but nothing is guaranteed from the other side. In insurance/futures/options contracts one would make payment for assurance and guarantee to a rate or possible payment/service in the future. This would generally not be permissible. However in the case you mentioned one is not paying anything for guaranteeing that rate. The rate is agreed upon between you and the utility company without you paying anything for the guarantee. So it does not fall into gharar as far as I can tell. If I am making a mistake someone can correct.

You can read Introduction to Islamic Finance by Mufti Taqi saheb and discuss with ulema. Also read Mufti Muhammad bin Adam's articles on www.daruliftaa.com.