Question 1

What is the difference between riba al-nasi'ah and riba al-fadl?

Accepted Answer

Riba al-nasi'ah (riba of delay) refers to the addition of any predetermined excess in a loan transaction — this is what we call interest in conventional finance, and is the primary form of riba prohibited in the Quran (2:275-279). Riba al-fadl (riba of excess) refers to the exchange of commodities of the same type in unequal quantities — for example, trading 10 gold coins for 12 gold coins. Both are prohibited in Islamic law, but riba al-nasi'ah is the form most relevant to modern finance.

Question 2

Is Islamic finance truly interest-free or does it just replicate interest?

Accepted Answer

This is a genuine scholarly debate. Critics argue that Islamic finance products — particularly Murabaha and some Musharakah structures — economically replicate interest by producing similar cash flows under different contractual labels. Proponents argue that the contractual structure matters for Islamic compliance regardless of economic equivalence, and that risk-sharing in true Musharakah genuinely differs from interest-based lending. Fair Meridian presents both perspectives. The AAOIFI and ISNA positions generally support the permissibility of properly structured products.

Question 3

How do AAOIFI and ISNA differ in their Islamic finance standards?

Accepted Answer

AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) is an international standard-setting body based in Bahrain. It produces Sharia standards followed by Islamic financial institutions globally, particularly in the Gulf and Malaysia. ISNA (Islamic Society of North America) is a North American Muslim organization whose Finance House provides certification primarily for US-based Islamic finance providers. Both are credible certification bodies, but AAOIFI is more internationally recognized while ISNA has deeper roots in the North American Muslim community.

Question 4

What does 'Sharia-compliant' mean versus 'Sharia-based'?

Accepted Answer

Sharia-compliant typically means a product has been structured to avoid specific prohibited elements (riba, gharar, maysir) and has received certification from a Sharia supervisory board. Sharia-based implies a deeper alignment with the spirit and objectives of Islamic law — including promoting equity, sharing risk genuinely, and serving social good. Critics of some Islamic finance products say they are Sharia-compliant (technically avoiding prohibited elements) but not truly Sharia-based (not embodying the ethical objectives of Islamic finance).

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