Imagine being a young Muslim in the UK today. You are committed to your religious belief – which tells you that lending money at interest is forbidden in Islam – but you want to further your education and go to university. You need financial support, but you have a dilemma. The only finance available is a government-backed student loan, which bears interest.
After a three-month consultation on Sharia-compliant student finance, the government announced on September 4 that it plans to put forward legislation to create an alternative finance product compliant with Islamic Sharia law, which explicitly forbids usury or the charging of interest. It is good news for young Muslims in Britain.
Nothing can be better for the peace and stability that we all long for in the world than well-educated Muslims, with open minds, who are able to see through and resist the teachings of those who preach hate.
And that is why prime minister David Cameron was so right at the World Islamic Economic Forum in London last October when he said that: “Never again should a Muslim in Britain feel unable to go to university because they cannot get a student loan, simply because of their religion.”
£9,000 fees posed big problems
It was never the intention when student loans were introduced that a student should face such a binary choice: either go to university and have a conflict with their religious beliefs, or stand by those beliefs and don’t go to university.
When tuition fees stood at £3,000, Muslim students fell into one of three categories. They applied for a student loan and were not concerned about paying interest; they applied for a student loan, but were uneasy about paying interest and would have preferred finance that was Sharia-compliant; or they borrowed money from family and friends in order to avoid paying interest.
But when tuition fees rose to £9,000 in 2012, the third category became untenable because of the extra costs – a point the government recognised in its response to the consultation.
Embrace of Islamic finance
The UK government has already shown it is ready to move fast when it comes to the Islamic finance industry. At the World Islamic Economic Forum – the first to be held outside the Muslim world – Cameron announced that the UK Government would be launching the first sovereign sukuk, a bond that is compliant with Islamic Sharia law. This was a major undertaking for a Western government that should not be underestimated – especially since it was launched just eight months later in late June 2014.
The efforts of the government now towards finding a solution to domestic needs are no less significant.
At Bolton we were involved with the Department for Business, Innovation and Skills (BIS) in testing some of the first student attitudes to this problem. Much of the original thinking was around a loan backed by Murabaha, which is linked to commodities and is one of the most popular and understood forms of Islamic finance.
From the government’s response to the consultation we’ve learnt that five Islamic finance structures were considered. Each was measured against the traditional student loans to ensure that repayment and debt levels were identical, with no disadvantage or advantage to Muslim students.
‘Takaful’ a good option
Working with experts in Islamic finance, Sarah Webb and her team from BIS decided that these criteria could best be met through “Takaful”, essentially a co-operative where funds are deposited for the mutual use of those within the group. For student loans, this would mean a student agreeing to pay back the money they borrow into the fund once they start employment. This is seen as a charitable contribution under Sharia law, benefiting all members of the fund.
The government is to be congratulated, not only on an imaginative solution, but because the very essence of Takaful, with its emphasis on not just helping yourself, but helping others, sits very well with education. Given the ethical dimension of mutual help implicit in Takaful, there is every possibility that repayment rates will be high. Maybe this should even be a blue print for the whole of the student loan book?
As always, the success and acceptance of any scheme depends on how well it is understood. The government must make it clear, when the legislation for this scheme is going through parliament, that Muslim students are not receiving favourable treatment – nor are they gaining any advantage over students, whether from other faiths or none. They are paying exactly the same, but just paying for it in a different way.
The scheme’s success will also depend on assuring Muslim students that this is a genuine Islamic financial product. This will be accomplished through the authenticity of those giving it their blessing. The Sharia supervisory committee must be of the highest standing and well-respected internationally, so that no student could have cause to question its authority, or doubt the contract into which they are entering.
Because there are differences in Islamic schools of thought, which sadly have recently deepened, I would recommend seeking the opinion and accreditation of the Fiqh Academy Council which is part of the Organisation of Islamic Co-operation (formerly the Organisation of Islamic Countries) in order to get the fullest support of the wider Muslim community. This would help to ensure that it is accepted by all sects.
This does not take anything away from the respect and appreciation that is due to other Sharia committees who sanctioned this programme in the first place and to whom we should all be most grateful.