Is the recovery loan scheme Sharia-compliant?

by Qardus Team


The Recovery Loan scheme was launched on the 6th April 2021 by the UK government as a successor to the government’s Interruptions Loan Scheme and bounce back grants from 2020.  As with any loan scheme, this scheme requires the payment of interest. This, of course, is contrary to Islamic Sharia law principles that forbid the collection or payment of interest.

For many Muslim-owned and backed businesses, the question has arisen as to whether the Recovery Loan Scheme is Sharia-compliant. Before we address that, we need to look at the Recovery Loan Scheme and its key features.

The Recovery Loan Scheme provisions were put in place by the government to ensure that they were able to provide financial support to UK businesses.  The government wanted to offer additional funding to businesses in the UK that needed the funding to survive the economic turmoil brought on by the pandemic.

The Recovery Loan Scheme’s main purpose is to facilitate recovery and growth post-pandemic. The payments from the Recovery Loan Scheme also aim to ensure that businesses survive during the transitional period back to regular business activities.

The scheme is open to any business that is:
  • Trading in the UK
  • Able to show it has been adversely affected by the pandemic
  • Not involved in any insolvency proceedings
  • A viable business if not for the pandemic 


The Recovery Loan Scheme wants to facilitate a full return to business activities for those businesses that have been impacted by the pandemic.  The successive lockdowns have affected many small and medium businesses that have been unable to earn an income from their trade.

The Scheme is targeted at businesses that are viable enough to afford debt finance.  The British Business Bank administers the Scheme.  The actual funding is made available via a range of accredited lenders.

As with any process that involves applying for a loan, businesses need to make a formal application via the lender of their choice.

The loan consists of standard commercial lending terms and this includes the payment of interest on the loan amount.  The interest rate varies depending on the lender who provides the loan.


An approved lender of the Scheme can provide various loan products including:
  • Overdraft facilities
  • Asset finance monies
  • Term loans
  • Interest and fees payments

Any business applying for a loan through the Scheme can borrow up to £10 million.  There are also minimum facilities that start in the sum of £1,000.  

Some other key features are:
  • Guarantee: the government itself guarantees up to 80% of the loan to the lender, irrespective of the size of the loan.  This guarantee is not provided to the business, but direct to the lender. 
  • Interest: any business that takes out a Recovery Scheme Loan will have to make interest and fees payments from the date the loan is drawn.  Although interest rates are capped at 14.99%, lenders are encouraged to keep the rates low. 
  • Term: terms vary from 3 months to 6 years. 


Sharia law prohibits businesses from paying or receiving interest.  Interest, known as riba in Sharia law, is forbidden as it is seen as a mechanism that promotes social injustice.   One of the central concepts of Islamic Finance is that Muslims cannot benefit from lending money and paying interest on loans.Sharia law deems riba as an exchange with no equity.  That means that it encourages an exchange that is considered to be unequal and unjust.  Riba is considered to be an exploitative transaction.


If we have a look at the Recovery Loan Scheme, it relies on interest payments as a key feature of the Scheme’s repayment terms.  The interest element of the Scheme deems it to be non-compliant with Sharia law.  In this case, the business will be repaying the full loan amount plus interest at a rate decided on by the lender. 

The Scheme goes against the Sharia principle of ensuring investments and payments are socially responsible. 

Sharia law clearly states that lending with the payment of interest favours lenders who make money at the expense of the borrower.  Islam forbids the receipt of income from money alone, and this is precisely what interest payments are.

Islamic Finance is based on ethical economic principles.  The Recovery Loan Scheme is therefore not Sharia-compliant as the interest payment element of the Scheme is contrary to Sharia principles.However, businesses that operate within Islamic Finance principles can still recover from the pandemic.  Islamic Finance is focused on sustainable economics and there are products available within the Islamic Finance market that can assist businesses with economic recovery.  


We provide finance to small and medium-sized enterprises with growth potential that the business owners want to unlock. The funding available is from £50k to £200k with terms of between 6 and 36 months.

Our funding process is rooted in Islamic community principles and is certified as Sharia-compliant. As a result, we don't charge interest and we don't work in business sectors considered damaging to society, such as alcohol, tobacco or gambling.

Because of our principles, our funding solution is an attractive option for Muslim business owners, but we also provide funding to business owners outside the Muslim community.

We offer fast, flexible and affordable business growth funding that's firmly grounded in ethical principles. 

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