A government consultation paper has revealed the development of student loans compliant with Sharia law.
Under Sharia law, Muslims are forbidden from taking out loans which accrue interest.
The Institute of Islamic Banking and Insurance states that ‘as a matter of faith, a Muslim cannot lend money to, or receive money from someone and expect to benefit – interest (known as riba) is not allowed. Riba also applies when borrowing money, as the lender profits from the applied interest. To comply with Shariah, any loan must be Qard (free of profit)’.
“It has been a bit of a challenge, particularly having to balance my studies, social life and a job to cover my expenses”
The Department for Business, Innovation & Skills is to develop an alternative finance model following four months of consultation and calls by national Muslim organisations.
It is hoped that the new system will improve the number of Muslim students deciding to go to university, as finances will no longer be a deterrent.
A second year student who has chosen to fund his own studies said: “It has of course been a bit of a challenge, particularly having to balance my studies, social life and a job to cover my expenses”.
“The new Sharia compliant loan system will be welcomed by many. It will greatly increase access to further education”
They continued: “I’m fortunate to have a well-paying job with good hours to help me through but sadly this isn’t the case for everyone. The new Sharia compliant loan system will be welcomed by many. Apart from making life easier for otherwise self-funded students, it will greatly increase access to further education”.
Current student loans carry an interest rate at the Retail Price Index (RPI) plus 3% and repayments are based on salary once working.
The government has worked with Islamic finance experts to develop a system based on the Takaful structure which is already widely used in the Muslim community.
Students will receive loans from the Takaful fund and will pay it back interest free. The funds will then be loaned out to other students, based on a concept of mutual participation and guarantee.
“The government must now prioritise the introduction of a legislative vehicle to implement an alternative finance model”
Students will obtain finance from the fund by applying in a similar way to conventional student finance. They would agree to repay a Takaful contribution, which would be a charitable contribution for the benefit of other members.
The consultation received over 20,000 responses, with 93% claiming that interest-based loans conflicted with religious students’ beliefs and that a Sharia alternative was needed.
The Federation of Student Islamic Societies (FOSIS) welcomed the government’s declaration of support, with vice president of student affairs Ibrahim Ali saying: “Our view is that the government must now prioritise the introduction of a legislative vehicle to implement an alternative finance model.
“We will work with our partners in the run up to the general election to secure commitments from the main political parties to introduce the requisite legislation early in the new parliament.”
Image: The Independent