Gharar

Since student loans were first introduced in the United Kingdom in the 1990s they have proven to be problematic for Muslim students. The primary reason for this is that student loans incur interest - something that is prohibited in Islam under Sharia rules.

For many Muslim students who want to be compliant with Sharia laws relating to financial transactions, taking out a student loan is not seen as a viable option.

Riba In Islam

The literal Arabic meaning of the word riba is 'increase', 'growth', 'excess', or 'addition'.

According to Sharia laws, an increase of a debt owed or repayment of a loan is considered to be riba, or interest. This is strictly forbidden in Islam. Both the payment of interest and the receipt of interest payments are considered to be contrary to Islamic Sharia rules.

The reason Islam does not permit interest is that it is considered to be a means through which the poor remain poor, and the rich get richer. There is considered to be an inequality between the parties and within the transaction.

Riba is generally deemed to increase the gap between the poor and the rich in society and this goes against Islam and the social responsibility message that permeates Islam.

Student loans within the UK are currently repayable with interest, so this creates a dilemma for Muslim students.

Interest And Student Loans

As student loans require repayments that incur interest, many Muslims deem them to be an unacceptable way of funding their higher education goals.

There has been a great deal of debate within the Muslim community about student loans and the issue of riba.

Islamic Concept Of Finance

One important thing to note for anyone considering taking out a student loan is that traditional western banks and lending organisations treat money solely as a commodity in business.

By contrast, in Islam, money is considered to be a medium of exchange with a measure of value only.In Islam, money performs a social role.

The value of the money is stored within it, not outside it. This is one of the primary reasons riba / interest is not permitted.

Student Loans - History

Student loans have had a variable history. In the 1960s, 12% of school leavers went on to university. This represented 1 in 10 students. There was no such thing as student loans in the 1960s. University fees were actually paid fully by local education authorities. Students left university with little to no debt.

In addition to having fees paid, university students could also apply for a means tested annual grant to cover their living costs.

In the 1970s the number of school leavers attending university increased slightly to one in seven. By the end of the decade, this figure had dropped again as there was a squeeze on university funding.

The 1980s saw a huge increase in the numbers of students wanting to go on to higher education. The then education secretary, Kenneth Barker, pushed for higher numbers of young people to attend university and increase their skill sets.

By 1990, one in five school leavers was attending university. However, the maintenance grants had not increased by much, so in 1989 the Tory government introduced student loans akin to mortgages. These loans were to account for having no increase in the annual student grants and were intended to bridge the gap between the funds available and the increased cost of living. Grants of up to £2265 were available on a means tested basis.

Higher education and university entry really saw a boom period in the 1990s onwards. More and more young people were going to university and the number of courses available increased.

The Labour government got rid of the grant in 1997 and replaced it with a new policy and system whereby a £1,000 means tested tuition fees was available, alongside low cost loans.

By the early 2000s, many more young people were attending university. The Labour government pledged to raise the percentage of young people going to university to 50% and they wanted to make sure students had an incentive to study further. Tuition fees amounted to £1,100 per year, and this was offset by loans of up to £3,950.

In 2006, tuition fees were raised to £3,000 per year which become payable once students graduated and were earning above £15,000 per annum. Students were informed that the repayments were to be made on the 9% of income over the relevant threshold, with inflation-only interest rates.

Coming to modern day student loans, tuition fees are currently £9,000 per year and additional loans are available that could amount to over £12,000. This means that an average university student who undertakes a 3 year degree will come out of it owing a considerable debt. This debt accrues interest.

In the United Kingdom, it is the Student Loans Company that administers and monitors student loans. The Student Loans Company is the organisation that calculates the amount payable to individuals and ensures the payment reaches the right bank account.

INTEREST ON STUDENT LOANS - IS THIS RIBA?

Opinion is divided about whether student loans are considered to be halal or haram.

There are some Islamic scholars who believe that student loans are inherently haram and non Sharia compliant as they incur interest. However, there are also scholars who have the opinion that student loans are halal.

Let's have a look at the arguments for and against student loans.

Fatwas That Deem Student Loans To Be Haram

The Al Qalam Institute did its own research and issued a fatwa relating to student loans and their permissibility for Muslim students. The issue they looked at in detail was whether the repayment of the student loans was commensurate with inflation rates, or whether the repayments incurred 'bolt on' interest payments.

The research the Al Qalam institute undertook concluded that the student loans at the time of the fatwa (2013) were deemed to incur riba. This meant that student loans were contrary to Islamic laws relating to finance and loans.

The reasoning behind the judgement was that student loans DID attract riba and were not simply attracting inflation based increases in repayments.

According to the Institute, irrespective of the need for the loan (ie to further a person's education, knowledge, and prospects), if a loan incurs interest then it is prohibited.

There is still a great deal of ongoing debate amongst scholars about whether the loans are strictly linked to index price/inflation raises or whether they do actually incur interest outright.

It is likely the debates will continue for some time until any consensus is reached.

Arguments And Fatwa In Favor Of Permitting Student Loans

There are, however, other schools of thought that have the opinion that by their very nature, student loans do not fit the traditional definition of a loan.

Some Islamic scholars have raised the question of whether student loans do in fact incur riba and whether they should fall under the definition of what a de-facto loan is.

The reasoning behind this argument is that any student who obtains a student loan will never fully take ownership of the loan amount.

The student loan itself is seen as an investment towards a future of learning.

As the bulk of the student loan is given straight to the university or institute of higher education, the student never actually receives full ownership of the money. Without ownership it is questionable as to whether student loans are actual loans under Islamic finance principles.

In addition to the above, it can be argued that as the loan only becomes repayable once a student earns over a certain threshold, there is no automatic interest based repayment.

Shaykh Dr. Haitham al-Haddad has issued his own fatwa relating to student loans. It is his opinion that taking out a student loan is permissible. He maintains that no riba is involved in the student loan transaction.

Shaykh Dr Haitham al-Haddad has researched this issue at length and concluded that student loans within the UK are permissible under the rules of Islam.

The Shaykh raises the following points to note when arguing that student loans are halal:

• the student never receives the full loan amount
• the student does not have full control of where the money is spent nor is there any element of profit
• the loan is eventually written off (cancelled if you die)
• the minimum earning threshold applies before any repayment is due

According to the Shaykh, the points mentioned above render the student loan as an entity that is different from the traditional loan, or qard.

The element of human ownership is not fulfilled as the monies are paid (mostly) directly to the university in lieu of tuition costs.

Of course, opinions on this issue continue to remain divided.

Students are encouraged to undertake their own research and due diligence.

Want Versus Need

Some scholars are of the opinion that there will never be a clear cut answer on whether student loans are considered to be halal or haram.

However, students should always consider whether their desire to pursue further education is a want or a need. If university is seen as a want - that is, it is not essential - then taking out extensive student loans might not be a good idea.

However, for those people who have no choice but to go to university such as doctors, lawyers, and dentists, perhaps there is an argument to say that there is a real need.

Not everyone who attends university is entitled to a bursary or scholarship and it would be a shame for these students to miss out on learning or advancement.

What is clear is that many Muslim students (and parents of students) have felt unable to access Sharia compliant and appropriate student finance. This has affected their employment prospects and their career progression.

Whatever your view of student loans, the UK does need to identify and create solutions that are accessible for Muslim students.

Conclusion

Ultimately, when deciding if student loans are halal or haram. students should be doing their own research on whether they feel comfortable taking out student loans.

Always seek out the knowledge of experienced and knowledgeable scholars. Use a website that you trust to find out more information, and read the opinions and advice of scholars who have researched the topic extensively.

Whilst not all Islamic scholars agree on whether student loans are halal or haram, what is clear is that the subject is still open to debate. Perhaps this is the reason that more and more universities are directing their Muslim students towards Sharia compliant loans and finance options.

In addition, the Federation of Student Islamic Societies, and the National Union of Students have been working collaboratively with the government to find alternative finance solutions for Muslim students who do not want to go down the traditional student loans route.

In the meantime, it is worth having a look at the various scholarships and bursaries available. These could be an alternative form if financing but it is rare to find one that will cover a full university course plus living costs.

In addition to this, many UK banks offer interest free current accounts up to a certain limit so it is also worth checking these out.

The UK government has been looking into having an alternative financing option for Muslim students to ensure that they have access to higher education.

In 2014, the government approved a non-interest based student loan model, and this is still under review.

However, in June 2022, the Federation of Student Islamic Societies reported that a date has been finalised for the non-interest based student loan and it would be available in 2025.

Until then, of course, the most beneficial course of action would be to seek out halal funding options. There are service providers available who provide Sharia compliant loans and products. In addition, there are some Muslim charities who will fund higher education.

Introduction

A pension fund is a pool of money that is managed by professional fund managers. The aim of the fund is to save money and invest money in preparation for retirement. A Sharia pension fund is a saving scheme for retirement that aligns with the rules of Islam. Sharia pension funds do not attach themselves to any form of interest or any haram industries.

Sharia pension funds are ethical investments, with funds invested in industries that offer social benefits such as healthcare, agriculture, and education.

With the rise of Islamic finance on a global level and the increased demand for Sharia-compliant financial services, the growth of Sharia pension funds has expanded significantly.

Sharia pension funds will typically have a screening process ensuring they comply with Islamic finance rules. It is important for these types of pension funds to have ongoing compliance monitoring, which means that a qualified Sharia scholar or expert reviews compliance regularly.

In 2024 Sharia pension funds saw significant growth. The Nest Sharia Fund increased its assets by a third to over £180 million.

Historically, Muslims have found it difficult to fund Sharia-compliant funds. The Office for National Statistics found in 2021 that 33% of Muslim employees did not have a workplace pension due to concerns about Sharia-compliance.

These statistics make it clear that there is a huge market for pension funds that comply with Islamic finance principles. Recently, the Financial Times has reported that Sharia pension funds are seeing a huge swell 'amid returns boost'.

WHAT MAKES A PENSION FUND SHARIA-COMPLIANT?

The key features of a Sharia-compliant pension fund are:

• Strictly no interest: the pension fund should have no involvement with interest in any way. This means that any interest-yielding activities, industries or products are not permissible.
• Ethical investing: the pension fund should be mindful of the industries the investments are involved in. Industries and sectors considered haram such as gambling and alcohol should be avoided.
• Compliance: compliance and ongoing monitoring are essential for a Sharia complaint pension fund.
• Sharia screening: financial and ethical screening must take place to ensure that organisations invested in have low levels of overall debt.
• Models of operation: profit-sharing and risk-sharing are the encouraged models of partnership working.

Some examples of Sharia-compliant funds include the following:

• sukuk/Islamic bonds
• investing in property without interest-based loans
• investing in ethical and sustainable industries such as healthcare

Comparing Top Sharia Pension Plans

If you are looking for Sharia-compliant pension funds to ensure you can save for retirement without breaching Islamic rules, then Penfold and Nest pension funds are a good place to start.

Nest Sharia Pension Fund

The Nest Sharia Fund invests in what are known as Islamic bonds (sukuks) that are fully Sharia-compliant. Nest ensures that Islamic scholars screen the investment products and services to ensure they adhere to Islamic rules.

In addition, Nest's Sharia Fund avoids haram industries and interest-bearing investments.

Nest's fee structure consists of a contribution charge (around 1.8%) and an annual management charge in the region of 0.3% based on the value of the fund.

With ethical investments at the core of its activities, the Nest Sharia Fund delivers growth whilst generating income. More recently, Nest has worked on diversifying its investment portfolio to include a 30% allocation to the sukuks it invests it.

Penfold Sharia Pension Fund

The Penfold Sharia Fund invests in a diverse portfolio of companies and funds that all operate in accordance with Sharia principles.

The Penfold fee structure charges an annual fee for savings up to £100k of 0.88%, and this fee drops to 0.53% on amounts over £100k. This transparent and easy to follow fee structure makes this pension fund attractive to investors.

Both these Sharia pension funds use rigorous screening processes that aim to ensure that all investments comply with Islamic finance rules.

If any company they invest in has a proportion of what is considered to be non-compliant income (ie income from interest), then they use purification processes such as donating money to charity.

Investment Risks And Rewards

Sharia pension funds are the same as all investment vehicles on the market. They come with their own unique set of risks and rewards. For Sharia pension funds, the risk management and mitigation strategies should be aligned with Islamic rules.

Sharia pension funds tend to avoid fixed income securities and conventional bonds as these vehicles rely on interest. Instead, Sharia pension funds prefer to invest in Islamic bonds.

Risk

The risk profile for Sharia pension funds can sometimes have a higher risk exposure due to the fact that they stay away from conventional interest-bearing bonds.

Return

In the long term, Sharia-compliant funds deliver comparable and competitive returns to conventional bonds.

Ethical Investments Vs Conventional Funds

It is important to note that Sharia pension funds maintain a balance between competitive financial returns and ethical investment strategies. This makes Sharia funds an attractive option for investors.

If you are looking for investments that focus on societal benefit whilst generating an income (or savings pot) then Sharia pension funds are a great alternative to conventional bonds.

Ethical sectors have seen a massive resurgence in recent years, with strong growth potential. Industries such as renewable energy and technology are prime for investment.

Investors are increasingly considering environmental, social and governance (ESG) factors when examining pension funds.

• Over 89% of investors consider ESG when investing.
• In the UK over 57% of investors now hold ESG investments
• Young Gen Z investors are increasingly interested in ethical investments
• Islamic funds continue to deliver results with nominal growth rates of 84% and 13% of annualised growth rates (Morningstar.CA)

How To Choose And Switch To A Sharia Pension Fund

In order for you to choose a Sharia pension fund you need to ensure you understand what a Sharia pension fund is and how it operates.

If you have a pension fund that you want to switch to a Sharia fund then you need to:

1. Review your current pension fund.
2. Find out if your pension fund provider is able to offer a Sharia-compliant fund.
3. If not, ask if you can switch your pension fund.
4. Check your pension fund information to see if there are any penalties or fees for switching to a Sharia-compliant provider.
5. Research what Sharia pension fund providers are available and make sure they are fully Sharia compliant.
6. Choose your new pension fund provider and open an account.
7. Ask your current pension provider to transfer your fund to the new Sharia-compliant provider.

If you want to transfer a workplace pension then speak to your HR team or your employer to find out if they accept transfers of the fund.

Switching to a Sharia pension fund should be straightforward.

Future Of Sharia Pension Funds

Sharia pension funds are becoming a popular investment vehicle and retirement savings plan for Muslims and non-Muslims. The ethical investment market continues to grow as investors across the world seek out sustainable and ethical investments.

Underpinned by social responsibility, the investments within Sharia pension funds appeal to a global audience of investors.

Sharia funds have become known in financial circles as promoting financial inclusion. They cater to investors who have not been able to fund ethical investments or investments that align with Islamic rules.

If you want to prepare for retirement in a Sharia-compliant way then Sharia pension funds provide the perfect vehicle for you. Providers like Penfold and Nest provide Sharia-compliant pension funds with competitive fees.

Cryptocurrency is a form of virtual currency that is based on blockchain technology. Cryptocurrency is a digital asset, and the vast majority of cryptocurrencies are based on decentralised networks. This means that the currencies exist outside of centralised structures such as governments and banks.

The blockchain technology makes it virtually impossible for the system to be duplicated, hacked, or cheated, and acts as a centralised ledger of the currency. Digital assets such as bitcoin are still relatively new assets on the global financial markets. Many Muslims are seeking clarity as to whether cryptocurrency is deemed to be halal and Sharia compliant from an Islamic perspective.

The mathematical value calculation of cryptocurrency coins is based on the algorithm of the blockchain itself. Blockchain technology is seen as being an efficient, safe, and undeletable system. This lends credence and transparency to the cryptocurrency market. The question of whether bitcoin and other digital assets are halal is one that has been discussed and debated in recent years.

The former Sharia adviser to Blossom Finance, Mufti Muhammad Abu-Bakr, compiled a report in 2019 that stated that cryptocurrencies, including bitcoin, should be deemed to be halal and permissible under Sharia law. Mufti Abu-Bakr's decision was made on the basis that all traditional (and permissible) currencies tend to have a speculative element and cryptocurrencies should therefore be permissible in Islam. Since his report, Muslims have considered investing, trading, and exploring bitcoin as a new way of transacting with others.

Scholars

In 2018, scholars from the Sharia Review Bureau in Bahrain stated that investment in cryptocurrency and coins such as Ethereum and bitcoins were permissible under Sharia law and halal. Their view was that bitcoin could be considered property (maal), and did not contain any form of interest.

Similarly, the Fiqh Council of North America has unanimously decided that bitcoin is permissible. Furthermore, the Sharia Advisory Council branch of Malaysia's security commission has advised that trading and investing in cryptocurrencies is permissible. This means that digital currencies can also be used to make zakat payments.

The Shacklewell Lane Mosque in London was one of the first mosques in the UK to accept cryptocurrency donations from Muslims. Most scholarly interpretations of digital currencies in the last few years have determined that cryptocurrencies are in fact halal.

Whilst many scholars have researched and reviewed the digital currency market, it is important for investors to undertake their own research before investing. In order to consider whether bitcoin is halal, we need to delve into the history of money from an Islamic perspective so that we can revisit the centuries-old Sharia rules relating to finance and investment.

This article will examine the historical perspective and apply the current interpretations in relation to bitcoin.

How Cryptocurrency Works

All cryptocurrency coins are virtual coins that exist in the crypto market, they do not have any physical form. The actual proof of legal ownership of the digital money is recorded on blockchain technology. The blockchain acts as a public record that records the digital growth of the coin, and the value of each coin.

Cryptocurrency works by recording transactions on a ledger and creating blocks. The ledger is available 24/7 and cannot be changed or overwritten. It is virtually impossible to counterfeit crypto, and all the computers that store blockchain technology have to 'agree' to comply with the accurate version of the ledger. When anyone purchases digital currency such as bitcoin they then own a private key that provides them with a code that authorises cryptocurrency transactions.

In the UK there are now cryptocurrency ATMs in London and further down south in areas including Plymouth and Penzance.

What Is A Bitcoin

Bitcoin was first created as a digital currency after the 2008 global market crash caused by the banks. At the time, there was a lot of interest in and demand for a decentralised system of money that was not controlled by banks and governments.Key features of bitcoin include the following:

• It is decentralised - there is no central power controlling it, instead is it based on sophisticated computer programmes
• It is transparent - everyone on the ledger can see the transactions undertaken
• It is non-repudiable - a buyer cannot claim they did not receive their coin if they did receive it
• It is easy and simple to set up
• The value of bitcoin is based on demand
• It is a trustable coin
• Anonymity - all bitcoin transactions are stored on a public ledger so there is very little secrecy

Bitcoins are traded through bitcoin exchanges. To send bitcoin to another investor you will need to use your private key to effectively 'sign off' on the transaction. Once the transaction is verified it cannot be reversed or revoked.

Islamic Perspective On The History Of Money

The history of money from an Islamic perspective can be traced back to the beginning of Islam. Islamically and under Sharia law, money is used for exchange rather than speculation or exploitation. This is one of the reasons that riba (interest) is strictly forbidden in Islam as it is seen as making a profit on money. The Islamic perspective of money and business rests on principles of social justice and non-exploitation.

Sharia laws relating to money state that to be used as a means of exchange the money should be safe, stable, and effective. The reason some Muslims are conflicted about the legitimacy of bitcoin and whether it is Sharia law compliant is that when the Quran was written there will obviously have been no mention of digital currencies as technology was not in the advanced stage it is today. This has meant that the permissibility of cryptocurrency has been open to judgement and interpretation by scholars.

Bitcoin And Islamic Finance

The question about whether bitcoin is deemed to be halal Islamically has been raised again and again as Muslims across the globe consider whether to invest in cryptocurrency. Cryptocurrency is based on supply and demand in the way normal currencies often are, and the coins themselves hold value based on the market.

Bitcoin heralded the birth of the free, transparent, global financial market. It is not surprising, therefore, that Muslims began to interact with this market. Islamic finance rules provide boundaries and regulations relating to financial dealings. Whilst cryptocurrency is still a prominent area of news and research for Islamic finance scholars and experts, what is clear is that the majority of scholars and Imams have interpreted that cryptocurrencies do not breach any of the Sharia rules relating to Islamic finance.

Bitcoin And Sharia Finance Rules - Key Principles

The main features of Islamic finance that need to be considered when it comes to bitcoin are:

1. Interest (riba) - interest is prohibited in Islam
2. Speculation (maysir) - speculative investment is deemed to be akin to gambling and is not permissible
3. Profit-loss sharing - parties to a transaction must share the risks and rewards according to Islamic finance
4. No excessive risk (gharar) - Islamic finance dictates that transactions that are uncertain or carry excessive risk are not permissible.
5. Application of trade and commerce (al bai')

Examining the Islamic finance principles mentioned above, it is clear that there is room for digital assets within an Islamic finance portfolio. Bitcoin does not have an interest element, nor does it provide one party with excessive profits or losses, or excessive risk.

As the world of cryptocurrencies continues to evolve, so does the demand for Sharia compliant coins. Recently, the Caizcoin was developed in Germany and marketed as the first fully Sharia compliant digital coin. It is likely that there will be further developments of digital currencies that meet all the requirements of Islamic finance principles.

Interpretations

Although already deemed Sharia compliant by Imams and scholars throughout the world, the Islamic cryptocurrency finance market is evolving to ensure that Muslims are catered for when it comes to investing in cryptocurrency. In January 2021, CoinMENA, the Middle Eastern digital assets exchange was given the go ahead from the Central Bank of Bahrain to become a certified sharia compliant exchange.

Muslims are becoming increasingly involved with the emerging digital currency fintech market, especially younger Muslims who are moving away from traditional forms of investment and entrepreneurship.

Conclusion

Discussions around bitcoin and other forms of cryptocurrency will continue in the years to come. Although many Muslim scholars have determined that investing in cryptocurrencies is halal, there will be some Muslims who will want to adopt a wait and see policy. As long as the bitcoin investment does not include haram activities then bitcoin itself does not contravene any Islamic finance principles that regulate investment, money management and currencies. What seems clear is that conceptually, bitcoin and cryptocurrency as a whole do not appear to be impermissible according to Sharia law rules. The growth of the Islamic cryptocurrency exchanges and coins does mean that there is more clarity and regulation than ever before for Muslims looking to invest in digital currencies.