Educational disclaimer: This article is intended for educational purposes. It does not constitute a fatwa or personal legal advice. For any individual situation, consult a qualified scholar.
Why riba is at the center of everything
Before understanding how HalalStack classifies an asset as "halal" or "haram," we must ask a simple question: what exactly does riba forbid in Islam, concretely?
The answer is more precise than the word "usury" suggests. There are two distinct categories, with different mechanisms, but both prohibited by the Quran (Al-Baqara 275-279) and the Sunna.
Type 1 — Riba al-qard: interest on a loan
Fiqh term: riba al-qard (sometimes called riba al-nasi'a in its application to deferred exchanges).
Principle: any benefit contractually stipulated in exchange for a loan of money is riba, without exception. The rate does not matter, it does not matter that both parties consent, nor does the final use of the funds. The rule is categorical and is the subject of consensus (ijma') across all madhabs.
The Hanafi reasoning (Ibn Abidin, Radd al-Muhtar): a loan of money (qard) transfers ownership. The lender bears no risk on the capital once disbursed — yet demanding a return greater than the capital without shared risk is precisely what riba al-qard prohibits.
In the HalalStack app: any asset whose core business model rests on interest-based lending is classified haram at the first layer of the screening (activity). No financial ratio can "save" it — that is the logic of AAOIFI SS21, section 3.
Modern forms of riba al-qard
| Product | Mechanism | Status |
|---|---|---|
| Conventional bank loan | Fixed or variable interest on lent capital | Haram |
| Sovereign or corporate bond | Coupons = interest on borrowed capital | Haram |
| Interest-bearing overdraft | Charges calculated on the negative balance | Haram |
| Revolving credit card | Interest on the balance not repaid by the due date | Haram |
| Livret A, LEP, LDDS (regulated savings) | Interest on a state-guaranteed deposit | Doubtful to Haram depending on scholars |
| DeFi lending (AAVE, Compound) | Algorithmic interest on a crypto deposit | Haram (consensus 2024-2025) |
Important nuance: paying interest one is subjected to (an unintended overdraft, unavoidable bank fees) differs from receiving it or structuring it voluntarily. Scholars distinguish the two cases, even though both remain problematic.
Type 2 — Riba al-fadl: the inequitable exchange of ribawi goods
Fiqh term: riba al-fadl (literally "riba of the excess").
Principle: during a spot (hand-to-hand) exchange between two goods of the same nature belonging to the amwal ribawiyya (ribawi goods), any inequality in quantity is forbidden. The exchange must be equal in quantity AND immediate.
The six ribawi goods cited in the Sunna: gold, silver, wheat, barley, dates, salt. For the Hanafis (Al-Kasani, Bada'i al-Sana'i), the criterion for extension is "measurability (by volume or by weight) and homogeneity of genus" (makil aw mawzun min jins). The other madhabs apply different extensions — it is one of the rare points of divergence on this subject.
In the HalalStack app: this rule explains why leveraged gold ETFs or certain derivative products on ribawi commodities are flagged. It also explains the vigilance regarding exchanges of paper gold against physical gold without immediate delivery.
Modern forms of riba al-fadl
| Situation | Problem | Status |
|---|---|---|
| Exchanging 10g of 18-carat gold for 12g of 14-carat gold | Weight inequality, gold against gold — inadmissible without compensation in value | Haram |
| Gold ETF not physically backed (gold paper) | No real delivery, risk of breaking the equivalence | Doubtful to Haram |
| Spot forex USD/SAR (two different fiat currencies) | Two goods of different nature — unequal exchange tolerated according to the majority | Permitted if genuinely spot |
| Crypto-to-crypto swap (BTC vs ETH) | Two goods of different nature — no riba al-fadl according to the majority view | Permitted (subject to other conditions) |
Key point: riba al-fadl applies only between goods of the same nature. Exchanging gold for silver, or for euros, is not riba al-fadl, but is governed by other rules (timing, exchange rate).
What this article does not do
- It does not address the calculation of purification (tatheer) for interest income included in a company's dividend — see the article "Purification: how to calculate the amount to give."
- It does not settle the debate on "Islamic fixed-rate" products (bank murabaha) that economically reproduce interest — an active subject among scholars.
- It does not cover gharar (excessive uncertainty) or maysir (gambling), two other sources of prohibition distinct from riba.
- It does not constitute an exhaustive list of alternative halal products.
Why this distinction matters for HalalStack screening
Screening an asset such as Apple or BTC is not at all the same exercise depending on whether the risk is riba al-qard (does Apple hold bonds? what share of its revenue comes from interest?) or riba al-fadl (inapplicable to an ordinary share).
The AAOIFI SS21 logic that HalalStack applies is built on riba al-qard: we measure interest-bearing debt, interest income received, and interest-bearing assets. The three thresholds (33% / 33% / 5%) aim to limit indirect exposure to riba al-qard, not to riba al-fadl.
Sources
- AAOIFI Sharia Standard N°21 (Financial Papers — Shares and Bonds), section 3 — two-layer screening and thresholds
- OIC Fiqh Academy, Resolution N°10 (1985) — categorical prohibition of bank interest
- Mufti Taqi Usmani, An Introduction to Islamic Finance, Kluwer Law International, 1998, ch. 2 — taxonomy of riba al-qard / riba al-fadl
- Al-Kasani (Hanafi), Bada'i al-Sana'i, vol. 5 — amwal ribawiyya and Hanafi extension criteria
- FaithScreener — AAOIFI Standard 21 Explained
- IslamicMarkets — Riba Al Fadl Explained