Riba al-Fadl
Riba al-fadl is the unlawful excess in a same-kind exchange of specified commodities — originally gold, silver, wheat, barley, dates and salt — which must be traded in equal amounts and hand to hand.
Also called: riba al-fadhl · exchange riba · riba of excess
The rule comes from a well-known hadith listing six commodities and requiring that each be exchanged for its own kind like for like, in equal quantity and on the spot. Where the two commodities differ but belong to the same broad class, quantities may differ but the exchange must still be immediate.
Most jurists treat modern money as falling within the same logic as gold and silver, which is the foundation of the Islamic rules on currency exchange (sarf). Exchanging US dollars for dollars must be at par; exchanging dollars for euros may be at any agreed rate, but both legs must settle without deferral, which brings in the concept of qabd, possession.
For a payments business the practical consequences sit in foreign exchange, gold products and anything that swaps one monetary asset for another.
In practice
Riba al-fadl does not prohibit profit on currency trading. It prohibits unequal same-currency exchange and deferred settlement; a spot trade of one currency for another at a market rate is permitted.
Example
A gold dealer offers to swap a customer's 100g of 18-carat jewellery for 90g of 24-carat bullion. Because both sides are gold, many scholars treat the unequal weights as riba al-fadl; the compliant route is to sell the jewellery for cash and buy the bullion with it in two separate sales.
Commonly confused with
| Term | How it differs |
|---|---|
| Riba al-nasi'ah | Riba al-nasi'ah is about delay; riba al-fadl is about unequal quantity. A same-kind exchange can breach either rule or both. |
See also
- RibaRiba is the prohibited increase at the centre of Islamic finance: an unjustified excess in a loan or in certain exchanges. It is broader than the English word "interest" and is not limited to excessive rates.
- Riba al-Nasi'ahRiba al-nasi'ah is riba arising from deferment: any increase stipulated in return for time on a loan, and the deferral of delivery in an exchange of like commodities that must be settled on the spot.
- QabdQabd is possession or control of an asset. Islamic law uses it to decide when a sale is complete, when an asset may be resold, and whether a currency or gold exchange has been settled on the spot as required.