Epistemological Analysis of Ribā al-Faḍl and Ribā al-Nasī'ah in Classical Tafsīr and Ḥadīth Literature: A Comparative Fiqhī Framework for Regulating Algorithmic Finance and Cryptocurrency Transactions in Contemporary Islamic Economics

Abstract

In this paper, the two key accepted classical definitions concerning the prohibition of interest—Ribā al-Faḍl and Ribā al-Nasī'ah—are analyzed epistemologically and reconciled within the classical tafsīr and ḥadīth literature and then examined using the new competitive problems presented by algorithmic finance and cryptocurrency transactions in Islamic economics. Applying the exegetical approaches of al-Ṭabarī, al-Qurṭubī, al-Rāzī and al-Ibn al-Kāthir, as well as the historical collection of the Six Books (al-Kutub al-Sittah) and the jurisprudential context of the prohibition of ribā in the four Sunnī madhāhib, the paper traces the rival epistemological bases for the development of the prohibition of ribā amongst classical scholars. It then investigates the impact of these foundations, especially the 'illah (ratio legis) of ribā, which were subject of debates that transcended the lines between schools, between monetary function (thaman) and divisibility into units (kayliyyah) and measurability (wazn), between food staple (qūt) and other asset categories, and between Bitcoin and altcoins in exchange, on the novel asset types emerging from decentralised finance (DeFi) and smart-contract lending protocols, yield farming, stablecoin mechanics and Bitcoin/altcoins exchange. The paper suggests that the epistemological variety of classical tradition itself offers hermeneutical tools to respond differently to the above mentioned technologies, and proposes a three-level regulatory framework that is grounded in the classical ‘illalah’ analysis, the ‘Maqāsid al-Sharī’ah’, and ‘maṣlaḥah ‘āmmah’.