Islamic students challenge student loan plans

The Federation of Student Islamic Societies (FOSIS) has criticised the government’s plan to introduce interest rates on student loans.

Usury, or the charging of interest, is explicitly forbidden in the Koran and is considered unethical in the Islamic tradition. Islamic banks instead lend money on a profit-and-loss sharing basis, where a bank shares a certain percentage of the profit or loss made by a company.

Last month, the government announced plans to introduce a three per cent interest rate on student loans for graduates earning above a certain salary. According to FOSIS, this will make the loans unusable for many Muslim students.

The government has stressed that these are not commercial loans and they will not be making a profit from student support.

However, Aqib Chohan, President of Edinburgh University Islamic Society, told The Journal: “For Muslim students, it will definitely put up a cruel barrier to education. Islam teaches us not to be involved in interest in any form, as it greatly widens the socio-economic gaps within societies. Some will still take out student loans, but to start off life in the ‘real world’ in debt can never be a good thing.

“Islamic finance is still a fairly new concept - its principles are constantly being refined - and many Muslims are unsure about whether it is a viable alternative, and so they just don't take the risk. We implore the Government to be truly considerate of all students, including Muslim students, in reviewing the plans. We must all unite to oppose these unfair and unjust suggestions in an intelligent and firm manner.”

The modern Islamic banking system of profit-and-loss sharing has existed only since the 1940s. It has grown rapidly since its inception, however, currently expanding at a rate of ten to 15 per cent each year. The Islamic banking network is now spread across 51 countries. It was estimated that shariah-compliant assets comprised 0.5 per cent of total world assets as of 2005.