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U.K. On the Way to Sharia-Compliant Student Loans

In September, after seven years of working in Egypt, Mostafa Atteya enrolled in a master’s degree program in Islamic Finance at Durham University in Britain.

His tuition is almost $45,000—far more than most 31-year-old Egyptians could afford. But Atteya was an equity trader for a Cairo-based investment bank operating in the Middle East and North Africa.

Like other students at Durham, Atteya recently received a university e-mail explaining that government loans were available to finance his education. The offer presented the Muslim graduate student with a dilemma—paying interest for borrowing money and lending money with interest is contrary to Islamic law. But as a broker, Atteya was tempted.

“I am Muslim, but If you offer me a good interest rate I would take it,” he said.

Luckily, Attaya didn’t need the loan. He pays for his studies, housing and books through his own savings. It struck him as odd, though, that a country like Britain wouldn’t offer student loans compatible with Sharia, or Islamic law.

“It is necessary to develop the Sharia-compliant system,” he said. “The U.K. government would have a good social feedback by offering such loans to Muslim.”

Interest-free help appears to be on the way—eventually—for Muslim students like Attaya.

In 2010, Britain allowed universities to charge as much as $14,400 a year (9,000 pounds) for tuition, up from $4,800 the year before. Students can take loans for as much as that amount, plus $7,000 for other expenses, according to a report of the United Kingdom Department for Business, Innovation & Skills. Interest rates range from 1 to 3 percent more than the rate of inflation for students earning more than $33,601 after they graduate.

After polling nearly 20,000 charities, business executives, trade unions and academics, British authorities decided in September to consider offering Sharia-friendly loans in England for Muslim students based on the 1,400-year-old concept of takaful, or lending money at zero interest rates using a pool of funds raised by shareholders that debtors repay via profit-sharing agreements.

From a Western lender’s perspective, of course, no-interest loans are a bad idea. The money that such loans are repaid with is usually worth less than the money that is lent, due to inflation. Governments considering no-interest loans to students have often backed off from the idea once they realized how expensive such a program could ultimately be, since the money paid back does not sufficiently replenish the loan fund. But government-sponsored no-interest loans could give the United Kingdom an edge in the highly competitive student recruitment market, since neither the United States, Canada or Australia have such a program. (Germany does not charge tuition, so loans are generally unnecessary.)

The United Kingdom Department for Business, Innovation & Skills told Al-Fanar Media that while officials were considering a sharia-compliant student loan system, they had yet to set a date to start the program, though they didn’t believe anything would happen before the 2016-2017 academic year.

For many Muslim students, Britain’s Student Loans Company can’t move fast enough to offer takaful loans.

“We will continue to put pressure on the government with the National Union of Students to make sure that this decision is implemented as soon as possible,” said Mohamed Harrath, media director for the London-based Federation of Student Islamic Societies, or Fosis. “The system enforced in 2010 was as a matter of fact discriminatory because many Muslim students wanted to go to university just as any other student, but don’t want to take out loans. We want to make university something that everybody can access.”

U.K. officials believe the alternative financing for Muslim students would benefit the British economy. “Making higher education more accessible to all is part of government’s long-term economic plan to boost skills and strengthen growth,” said a department spokesperson in a statement.

It’s difficult to estimate how many Muslim students out of a total of 115,000 currently enrolled in British universities have graduated later or interrupted their studies because of lack of access to loans, said Harrath.

“There are no national statistics,” he said.  “We can say by anecdotal evidence that . . .a lot of students would have decided to go to university if it had not been too difficult.”

The U.K. government poll conducted in April revealed that 83 percent of around 20,000 respondents believed that tuition increases have had a “large impact” on students with “religious objections to the charging of interest.”

Turkish student Ayse Nur Aydin, 23, who pays his tuition of $32,000 to enroll at Durham University through a scholarship, says the situation is dire.

“There are a lot of Muslim students who cannot continue higher education because of financial problems,” she said. “They can’t take student loans.”

Forcing Muslim students to take a loan would make them feel guilty and uncomfortable, she adds. “As a last choice I would go to a bank, as long as it is an Islamic bank operating according to Sharia principles,” she said.

In the meantime, most Muslim students in Britain rely on their family to acquire a Western education.

Fayaz Nazir-Srambikal, 23, is now looking for a job in the Gulf region after completing his master’s in Islamic Finance and Management at Durham. The university gave him a scholarship that covered around a quarter of his tuition and fees. His father paid for the rest.

Before, he earned a bachelor’s degree in commerce at the Mahatma Ghandi University in Kochi, India.

“It is clear that most of the universities get their main income from international students,” Nazir-Srambikal said. “At least the government is trying to include everybody.”

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