UK developing Shariah-compliant loans for Muslim students

The 'Takaful' Islamic finance model was selected as a potential product to be offered to Muslim students

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Seeking to boost the Muslim student population at British universities, the UK government is developing shariah-compliant loans, the Department for Business Innovation & Skills (BIS) said in a report published on its website.

The announcement came after four months of consultations on the so-called “Shariah-compliant Alternative Finance Product.”


The consultations focused on gauging the opinions of Muslim students, the Muslim community and the general public in the UK, according to the report.

The “Takaful” Islamic finance model was selected as a potential product to be offered to Muslim students.

Students taking part in the Takaful model “would not be borrowing money and paying it back with interest to a third party, which would not be compliant with Shariah law,” according to the government response.

“Instead the Takaful fund will be established with an initial amount of money that can be donated to the fund or on the basis of Qard Hasan (interest-free loan) and based on a concept of mutual participation and guarantee.”

The rise of tuition fees in since 2012 has affected the way loans are paid back. The current student loans carry an interest rate of Retail Price Index (RPI) +3 per cent. The interest rate during repayment is based on income and is between RPI and RPI + 3 per cent.

Affecting students

The government’s consultation on the new student Muslim loan product had more than 20,000 responses.

A survey showed that the majority of respondents thought the increases in tuition fees and the introduction of a real rate of interest has affected students with religious objections to interest.

A number of respondents said the government should provide Shariah-compliant student loans regardless of how many students would ultimately participate in it.

“We are also clear that the principle of ensuring that this alternative is available given that some students do feel unable to access HE is also vitally important, over and above the exact level of demand,” National Union of Students was quoted by the government’s report.

The government said it has been “working with the Bank of Britain and other Islamic finance experts to develop the Takaful model as a potential alternative to conventional student loans.”

“The overall message is that an Alternative Finance product would be welcomed by the majority although the Government would need to undertake further work to provide greater clarity,” the government said.

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