Riba al-Fadl

The riba that arises when the same type of ribawi commodity (gold, silver, wheat, barley, dates, salt, and by extension modern currencies) is exchanged in unequal amounts, even on the spot. The hadith of the six commodities requires like-for-like exchanges to be equal and immediate.

Riba al-fadl matters for currency exchange, gold and silver trading, and the analysis of money-for-money transactions such as discounting a debt or a bank paying more than par. It is often called the riba of sales, as opposed to riba al-nasi'ah, the riba of debts.

Riba al-fadl is less familiar than interest but it decides several modern questions. It is why exchanging a worn $100 bill for $98 in new bills would be impermissible (same currency, unequal amounts), why discounting a dollar receivable to $0.96 on the dollar is treated as riba by the majority, and why gold dealers who swap old jewelry for new by weight with a markup have to structure the markup as a separate sale rather than an unequal exchange. The rule's classical rationale was to stop disguised lending: if you could trade one measure of dates for two, you could lend one and demand two back.

Scholars have extended the six named commodities by analogy (qiyas) in different ways. The majority extend gold and silver to all money, so dollars and euros are ribawi and must be exchanged on the spot though at any rate since they are different types. Some extend the foodstuffs to all food sold by measure or weight; others limit the rule to the named items.

For investors the practical fallout is in gold and crypto: allocated gold bought at a market price for immediate settlement is permitted; a gold account that credits you more grams than you paid for is not; stablecoin lending that returns more stablecoins than deposited is riba al-fadl and al-nasi'ah together. Riba al-fadl is also one reason halal fixed-income products are built on assets and leases rather than on trading debts at a discount.