A contract engineered so the interest disappears from the paperwork while staying in the return.
Islamic banking markets itself against conventional, interest-bearing finance: no riba (riba), no predetermined return on capital divorced from real risk. A specific set of contract structures lets a product keep that marketing while reproducing the economics it claims to reject. The clearest case is organized tawarruq, also sold as commodity murabaha: a bank buys a commodity (commonly metal) and sells it to the customer at a deferred, marked-up price, and the customer immediately resells the same commodity for cash through a broker the bank has already arranged. The commodity never leaves the paper trail; what the customer is left holding is cash today against a larger, fixed repayment later, which is the cash-flow signature of an interest-bearing loan. Bay al-inah, used in some jurisdictions, follows the same logic with a sale-and-buyback of a single asset instead of a two-leg commodity trade.
The strongest critics of this practice are inside the tradition, not outside it. Justice Muhammad Taqi Usmani, one of the most senior scholars in contemporary Islamic finance, has warned that murabaha-based financing is “a very sensitive mode” that banks now apply “without understanding its reality or giving due care to its conditions,” collapsing the distinction it depends on. The OIC Fiqh Academy went further in 2009, ruling in Resolution 179 that organized tawarruq, where a bank pre-arranges every leg of the trade, is a legal stratagem (hilah) for circumventing the riba (riba) prohibition rather than a genuine sale. Economist Mahmoud El-Gamal, in Islamic Finance: Law, Economics, and Practice, frames this pattern as Shariah arbitrage: paying a premium for cosmetic modifications to a conventional product so it clears the formal requirements of fiqh without changing its underlying economic effect.
“Halal-washing” itself is not a peer-reviewed or academic term; it surfaces mainly in Islamic finance trade press and advisory commentary (Azzad Asset Management’s client materials are one example), usually as a deliberate echo of “greenwashing,” and often applied narrowly to unverified halal or ESG screening claims rather than to contract structuring specifically. The underlying mechanism it points to, contracts engineered to survive a Sharia audit while replicating a conventional loan, is the well-documented part: that is the organized tawarruq and Shariah arbitrage literature described above, not the label attached to it.