Long Read: Takaful Sharia-compliant loans: what are they and why do we need them?

It is proposed that articles 80 -82 of the Higher Education and Research Bill, 2016 -2017 can be seen to take positive steps towards establishing a national framework for a Sharia-compliant ‘Takaful’ loan scheme. The tabled proposal, now at report stage in the House of Lords having passed through the Commons, creates a space for future legislation which enables ‘Alternative Payments’ by students of all faiths or none. The proposal is of particular interest to those (not all) British Muslims who maintain that usury (understood in the traditional context as interest of any kind) is unethical, creates inequalities and goes against the teachings of Islam.

Originally, prospective students were able to attend university through the help of their family who could afford “small” tuition fee’s upfront, or as a result of university grants which enabled Muslim students to access education through means tested grant applications. However, the 2004 Higher Education Act paved the way for universities to charge students tuition fees of up to £3,000 per year. This proved problematic for those who could not afford to pay such high costs upfront and was further exacerbated following the Browne Review in 2010 which saw fee’s rise to £9,000+ per year along with the implementation of interest on loans charged at the rate of inflation + 3%. Policy changes have therefore left many British Muslims in precarious positions as they can no longer afford to pay increasing tuition fee’s upfront and are inhibited from accessing interest-based loans.


Historical Context

The notion of usury is embedded in historical thought and culture and condemnations of the act exist in the Vedic texts of India to Christian teachings in Medieval Europe, in the works of Aristotle, Plato and Seneca and in Ancient Roman legislation. Same societies and their inhabitants have since altered their positionality and have adopted systems which utilise interest within lending mechanisms whilst others have maintained that interest is still immoral and is deemed a sin. In today’s Britain, the main opponents to the paying and charging of interest are British Muslims. They maintain that the roots of interest stem from the notion that money is only a medium of exchange, a way of defining the value of a thing and has no value in itself. Therefore, Muslims believe that money should not be allowed to give rise to more money, via fixed interest payments, simply by being put in a bank or lent to someone else. In short, money is not regarded as an asset from which it is ethically permissible to earn a direct return and it is believed interest can lead to injustice and exploitation in society. Prospective students are subsequently forced to choose between their religious and moral beliefs and their desire to want to study and learn.



It is fair to suggest that previous policies are discriminatory towards an important part of society and has made it hard for some British Muslims to enter university. These exclusions are wholly unnecessary considering a parallel system has already been identified in the name of the Takaful loan scheme. In short, it is a co-operative loan scheme run by the Student Loans Company. Takaful involves a cooperative insurance contract built on principles of voluntary contribution and mutual cooperation (El-Gamal, 2006). A pot of funds will be set up which will be used to pay for students education by members of the Muslim community. Upon graduation and earning a wage, graduates will then pay back into the funding pot so that future generations of students may also attend at the same rates as those paying back interest in the conventional way. Instead of profits, then, going to banking institutions and other lenders – “donations” are instead used for the community and in this instance, specifically for education. A Sharia-compliant ‘Takaful’ loan scheme therefore provides a solution whereby students may enter university without having to sacrifice their moral and religious beliefs.

There are a number of key benefits of a Sharia-compliant Takaful loan scheme. Broader payment options for all students means that those who do not enter higher education due to interest charged on student loans will in future have an alternative option of payment and will not have to make a choice between beliefs and education. This can serve to reduce financial burdens on students (Muslims are particularly over-represented in the lowest socioeconomic communities) (ONS, 2001) and their families in the sense they do not need to pay expanding student fee’s up front. This may lead to an improvement in (predominantly) British Muslim students’ experience of higher education and foster higher attainment. Of course, perhaps most crucially, university is a space and a place where knowledge is shared, cultures coalesce and diversity, integration and societal cohesion are fostered. Encouraging participation amongst people from all parts of our society can only help to foster a more understanding, equal and united country.

It must be noted that the scheme itself is far from being implemented despite a 2014 Department for Business Innovation and Skills consultation backing a Takaful Sharia-compliant alternative finance product and an official acknowledgement by government of its necessity. In a recent House of Lords debate, Baroness Goldie suggested that such a system was yet to be implemented as a result of human resource and practicalities around implementation. It is somewhat alarming then that two cohorts of prospective Muslim students (since 2014) have been denied alternative funding options (and the ability to go to university) as a result of pragmatics. To ensure clarity, the British government ought to provide a guarantee to the community that students will have a choice of interest-free loans by no later than 2019. The fact a problem was identified in 2012, a solution provided and agreed upon in 2014 and yet no tangible outputs since, is unacceptable. We welcome the government’s advances, one of the first to provide alternative student payments, but we question its urgency, or lack of, when implementing policy.

In addition to the pace of implementation, in accordance with the findings of the Department for Business Innovation and Skills consultation, it is apparent that a number of people perceive Takaful to be part of a “Sharia agenda” of sorts which threatens British law and order. In a climate of Trumpism and at a time of global racial, religious and ethnic division, we call upon the government to acknowledge people’s fears (regardless of accuracy) when initiating change. Information should be provided for all those concerned in a clear and concise manner in order to alleviate concern. This will serve to benefit those members of the Muslim community who may also feel pressured into adopting the Takaful as a result of peer pressure. It must be communicated that Takaful is simply a product that offers future students whose religious beliefs mean they are unable to access interest bearing loans an alternative option. And so, it must be made explicitly clear that all students will be required to pay the same amount for their education. No persons will benefit or be left worse off as a result of the additional option and anyone, regardless of race, religion or ethnicity, may access the Takaful alternative if they so wish.

Key recommendations

  • Provide a guarantee that Takaful will be implemented by 2019
  • Clearly communicate that no student, regardless of which loan option they take, will be better or worse off
  • Highlight that all may access the alternative Sharia-compliant loan system
  • Alleviate misplaced fears, as identified in the 2014 Department for Business Innovation and Skills consultation, that Sharia law will not override British law and order