A Post‐Keynesian perspective on Islamic prohibition ofGharar

Purpose - This paper aims to draw the wisdom of the prohibition ofGhararthrough the lens of institutional and Post‐Keynesian economics. Design/methodology/approach - This research applies the theoretical contributions of the Post‐Keynesian economics and the new institutional economics to clarify the dimensions of IslamicGharar. This research attempts to see the divergence between theory and practice, looking at empirical data including the information from an interview with one of Indonesian Islamic banks. Findings - The lens of institutional and Post‐Keynesian economics is useful to clarify two dimensions ofGharar; incompleteness of contracting and fundamental uncertainty associated with business. As for the latter dimension ofGharar, the tradition of Post‐Keynesian economics can distinguish “animal spirit in speculation” and “animal spirit in enterprise”, the latter of which should be carefully considered. However, the interview reveals a kind of difficulty for Islamic financial institutions to tackle “Murabahasyndrome”. Research limitations/implications - This research supports an opinion such that Islamic financial institutions are not necessarily discouraged to share the associated uncertainty with the small‐sized firms in the agricultural and industrial sector, so far as their “enterprise” is based on the Islamic business ethics. Originality/value - Despite very significant discussions in the literature on the prohibition ofGhararas a fundamental principle of Islamic finance, less has been done to elaborate upon it through the lens of Post‐Keynesian economics which have greatly contributed to shedding analytical lights on “uncertainty”.