The government is to develop a student loan system complaint for Sharia Law in order to boost the Muslim population at England's universities, it has announced.
Following a four month-long consultation, the Department for Business Innovation & Skills (BIS), published its response to producing an alternative finance model for Muslim students.
Since the increase in tuition fees in 2012, the way student loans are paid back has changed. Prior to the rise, interest was charged at a rate of Retail Price Index (RPI) - a measure of inflation - or 1% anove the highest Base RAte of a nominated group of banks, whichever was the lower amount. The repayment was calculated at 9% of the graduate's annual income.
Now, loans carry an interest rate of the RPI plus 3%. Interest on repayments is still based on income, but is now between RPI and RPI plus 3%.
The consultation had more than 20,000 responses, with 93% saying interest-based loans had had an impact on students with religious objections. The same amount agreed there was a "clear demand" for a sharia alternative.
BIS worked with Islamic finance experts to identify a potential finance product which could meet demands, settling on the Takaful structure, which is already used to allow groups of people to cooperate to provide mutual finance assistance to members.
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. Students will obtain finance from the fund by applying in a similar manner to the conventional loan.
The contract will be based upon a unilateral promise guaranteeing that they will repay a Takaful contribution - which is perceived as a charitable contribution from a Sharia perspective for the benefit of the members of the fund. Monies will be released once the contract is signed.
Repayment will be made to the fund once they are in employment and earning above the repayment threshold, which would be set at the same level as for traditional student loans.
In 2011, Muslim students in Britain protested the "discriminatory" government reforms which raised interest rates on tuition fees.
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."
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