Is there an Islamic cryptocurrency?
Cryptocurrency, as it is known today, started with Bitcoin as the first decentralised cryptocurrency in the modern world. The first Bitcoin transaction took place as far back as 2009 and ever since Bitcoin has grown into a global phenomenon bypassing traditional finance systems and banks. Islamic cryptocurrency, also known widely as Islamic coin, began to emerge in the late 2010s as the demand for Sharia-compliant digital assets grew.
Islamic coin is Sharia-compliant cryptocurrency that adheres to Islamic finance rules relating to financial transactions and exchange. This article will examine the benefits of Islamic coins and their relevance in the modern world of finance.
Cryptocurrency And Islamic Finance
Over the years Islamic finance and the world of cryptocurrency exchange and platforms have become increasingly interconnected. Islamic coin merges the traditional with the modern, uniting decentralised currencies with Sharia principles.
Not only does the Islamic coin stand as a testament to the thriving impact of Islamic finance on the modern world, but it also offers Muslims an alternative and innovative way of managing their money.
Two notable initiatives relating to Islamic coin are the First Islamic Crypto Exchange (FICE) and project Onegram. Project Onegram is a project that aims to create an Islamic cryptocurrency coin that is backed by gold reserves. Users of the coin are able to store their coins in a digital wallet and transact securely.
FICE is an Islamic initiative aiming to provide an Islamic digital platform for cryptocurrency transactions that are fully compliant with Islamic finance rules.
The main features of FICE are:
- it employs ethical screening
- it incorporates community governance within its structure and operations
- it offers Sharia-compliant trading
FICE and Onegram are both efforts to bridge the gap between Islamic finance and blockchain technology. The aim is to offer Sharia compliant solutions to Muslim investors in the realm of digital and decentralised finance.
Main Features Of Islamic Cryptocurrency
There are some key features that differentiate Islamic coin from other cryptocurrencies:
- Asset backing - Islamic coin is based on a system of asset backing. This not only provides intrinsic value but also stability in line with Sharia rules. Often the digital coin is pegged to assets that are tangible such as gold, real estate, silver, and commodities.
- Transparency: Islamic coin transactions must be transparent if they are to comply with Islamic finance rules. This means any trade, investment, platform being used, sales, prices, return, market, service, and exchange involved must be halal and transparent.
- Sharia law: Islamic coin must be Sharia compliant. This means the coin itself cannot be involved in any form of interest, uncertainty, or speculation.
- Governance: the governance relating to Islamic coins is usually decentralised. This is looked upon favourably by Islamic finance as it means there is more scope for the community to be actively engaged in the governance structures and processes.
- Regulation: Islamic coins, whether in the UK or abroad, must comply with regulatory frameworks that govern digital assets and finance. Digital assets are seen as a valuable commodity and many countries already have robust regulatory frameworks in place.
WHAT IS AN ISLAMIC COIN?
Islamic coins are essentially a form of cryptocurrency that is Sharia compliant. Muslims have an incentive to partake in Islamic coin trades and investment as they can be reassured that the coin is fully halal.
Of course, this means the coin must be certified as Sharia-compliant by experts with knowledge of Sharia law and rules.
For example, Islamic coin cannot be aligned or involved with any industry or market that is prohibited in Islam such as the gambling or alcohol industry. There is also a requirement that Islamic coin investment considers social benefit and social purpose as per Islamic finance rules. The ethics of the management and investment of Islamic coin are also important for adherence with Islamic finance.
WHAT ARE THE BENEFITS OF ISLAMIC COIN?
Islamic coin offers many benefits to its users:
- It is Sharia-compliant and aligns with Islamic principles
- It is transparent
- It is stable
- It facilitates the creation of strategic partnerships and ethical investment
- It provides innovative financial solutions
- It supports marginalised communities
- It uses ethical investment criteria
- It facilitates and enables financial inclusion
- It enables cross-border transactions
- It operates on a profit and loss sharing arrangement
- The HAQQ platform screens for Sharia compliancy
Islamic coins offer many benefits to Muslim participants and investors looking for halal ways to invest and trade. As the cryptocurrency financial ecosystem continues to evolve, Islamic coin will play a key role in shaping the future of Islamic cryptocurrency and digital assets.
WHAT IS THE DIFFERENCE BETWEEN ISLAMIC COIN AND BITCOIN?
When considering cryptocurrency, the question always arises about the difference between Bitcoin and Islamic coin. The main difference is that Islamic coin adheres to Islamic finance principles. The very existence of Islamic coin is to ensure that Sharia rules are complied with and there is no such obligation on Bitcoin.
Whilst both coins operate on decentralised platforms, Islamic coin should incorporate more transparent structures of governance leading to greater accountability and proof of adherence.
In addition, another key difference is that Islamic coin needs to follow ethical investment screening and criteria in order to the compliant with Islamic finance. Islamic coins operate on the HAQQ blockchain.
Whilst there are similarities in the nature of both Bitcoin and Islamic coin, the main difference is that Islamic coin adheres to a different set of values and principles. Users of Islamic coin will therefore seek assurance of compliance with Islamic rules relating to finances.
WHAT IS THE FUTURE OF ISLAMIC COIN?
More and more Muslims are looking to invest in and trade in Islamic coin. The Sharia Authority which was formed for the purpose of making decisions on the validity of cryptocurrency has stated that Islamic coin is a financial asset that can be traded whether that is by sale and purchase, or traded for goods and services.
Islamic coin holds great potential in the crypto world. As the crypto ecosystem and infrastructure continue to evolve there are some trends that suggest Islamic coin will see great growth in the coming years:
- Global financial inclusion: Islamic coin is playing a central role in making sure underserved Muslim-majority regions are able to partake in digital currencies. The demand is already there and is growing.
- Islamic finance growth: as the Sharia compliant finance industry grows so too does the demand for the accompanying digital ecosystem.
- Evolving markets: as the dynamics of markets in the world continue to grow and develop, Islamic coin is predicted to grow alongside them. Collaboration and innovations are already being seen across many different regions.
- Adoption: increased adoption of Islamic coins will lead to greater liquidity, market development, and acceptance.
WHAT ARE OTHER HALAL COINS TO INVEST IN?
Whilst the list of halal cryptocurrencies is growing, it is important to note that cryptocurrencies as digital assets are not deemed to be automatically compliant. They need to be screened by experts against Sharia principles. Some coins that have been deemed to be halal include:
- ZRX
- ELF
- Aion
- Alchemy Pay
- ASTA
- BEAM
- Cardano ADA
- Chainlink
There are many other coins that are deemed to be Sharia-compliant, but in each case you must do your own research and satisfy yourself.
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Whether you are a beginner or seasoned investor, when it comes to halal investment this article will explain everything you need to know. This guide is your gateway to understanding Islamic finance, investments, assets, and the value of making informed investment decisions.WHAT CONSTITUTES INVESTMENT?
Investment refers to the process of buying assets with the aim of the assets increasing in value over time. As the value of the asset increases, the investor is provided with a return that takes the form of capital gains or income payments. Investment has historically always been associated with the growth of wealth and the pursuit of capital income. However, investments can also be a means to improving lives and the lives of those in your community.
Investing becomes profitable when the asset you invest in increases in value and you are then able to sell it at a higher price. When the asset increases in value this is known as appreciation.
Investment can be complex and fraught with risk and technical difficulties. Add in the Sharia rules and the world of halal investment can seem increasingly daunting for Muslims. Sharia compliant trading and investments are those investments that do not breach the Sharia rules which are based on the idea of ethical investment and saving. Islamic finance principles relating to finances and investment are based on social justice, non-exploitation, and halal investments that lead to a mutually beneficial partnership.
WHAT IS SHARIA COMPLIANT OR HALAL INVESTING?
Halal investment refers to the investment of money in accordance with Islamic finance principles. Sharia finance law is centred on the concepts of social justice, ethics, and using finances to help build communities. For any Muslim considering halal investment strategies, the focus should be partnerships that are mutually financially beneficial.
Sharia law lays down principles and regulations Muslim investors must comply with if they want to invest in halal products. According to Sharia rules, compliance with Islamic finance principles leads to a more ethical and just society. This goes against the western notion that making money is the ultimate aim for investors. Whilst Islamic finance does not prohibit making money, it does place emphasis on ethics and justice, so that a balance is achieved between religion, family, life, intellect, and property.
Halal investments should not be dismissed by those wanting to generate income. Islamic finance is not restricting or limiting, it simply proposes ethical practices and mutual benefit. Halal investments encourage Muslims to invest responsibly and always ethically. It is still very possible to make money ethically with the right investments. Investing within Sharia compliant products actually reduces the risk for investors, and is one of the reasons that Islamic banks were able to withstand the economic collapse in 2008.
Investment And Islamic Finance Principles
Islamic finance principles provide financial principles for Muslim investors to operate within to ensure that the financing and investment activities comply with Sharia law. Whilst the main principles of Islamic finance have been around for centuries, formal Islamic banking and finance was established in the 20th Century.
As the global Muslim population continues to grow, so too does the demand for Islamic finance products and banking. The Islamic finance sector is increasing in size every year, with Islamic finance institutions overseeing over $2 trillion.
The core difference between traditional investment and Islamic investment is that Islamic finance principles dictate what investments are deemed to be halal or not. Islamic finance needs to comply strictly with Sharia law, and the following Islamic finance principles are expressly prohibited:
Paying And Charging Interest (Riba)
Interest payments, or investments that include an interest element, are strictly prohibited in Islam. Charging interest is not considered to be Sharia compliant as it is deemed to be an exploitative practice.
Risk And Uncertainty (Gharar)
Sharia rules do not allow participating in contracts where there is excessive uncertainty or risks. Investing or partaking in any short-selling or uncertain contracts are forbidden in accordance with Islamic finance principles.
Investing In Prohibited Activities
For Muslim investors, investment in any business that is involved in prohibited activities such as gambling, and selling alcohol is prohibited.
Speculation (Maisir)
Sharia law prohibits speculation or gambling. So, if any form of investing includes contracts where the ownership is dependent on events in the future that are uncertain, this is deemed to be precarious.
Benefits Of Halal Investments
As the Muslim economy continues to increase year on year, the Islamic finance industry is also growing to cater for the need for growing halal investment options and products. Some of the main benefits of halal investments for Muslims (and no-Muslims) include the following:
- Social Responsibility - taking a socially responsible approach to finances and investment not only means the investment is Sharia-compliant, but it can also lead to human rights protections, just distribution of wealth, and ethical investments that minimise environmental degradation.
- Less Risk - Islamic finance principles mean that halal investment products are less susceptible to huge market changes and fluctuations. Global crises do not impact Islamic finance as they do more traditional banking. As short term speculation is discouraged in Islam, the exposure is much lower overall.
- Growing wealth in a halal way - this is the most critical benefit for Muslim investors. Not only does halal investment mean that Muslims can engage and involve themselves with global markets, it also means that Muslims partake in disciplined investment that requires ethical due diligence.
Stocks, Bonds And Shares
Stocks, bonds and shares are the most common publicly traded investments. Stocks are essentially ownership shares of companies that have publicly traded. A stock is a share of the companies earnings and assets, owning one stock is equivalent to owning a part of the company. If the value of the company increases then the value of the stock increases at the same rate. Similarly, if the market value of the company decreases then so will the value of the stocks owned. Muslim investors who purchase stocks will want to know the modus operandi of the company so that they can be sure that any income derived from their stocks is Sharia compliant.
Bonds are ownership shares of debt, and are usually interest-bearing. This means that the bond effectively acts as a loan to the company. On the whole, bonds are not considered to be a Sharia compliant investment as they are rooted in interest payments. Sukuks are a more acceptable form of Islamic finance bond (see below).
Gold
In terms of investment, gold is considered a safe and traditional means of investment that is Sharia compliant. Gold often appreciates in value, is easy to obtain and invest in, and is not deemed to be in breach of any Islamic finance laws.
Sukuk
Sukuks are an alternative to traditional bonds as they do not bear any interest. They are often referred to as Islamic bonds, and are normally asset based. They are deemed to be conservative investments on the basis that they form part of the 'fixed income' market.
Sukuks are able to generate income for halal investors without breaching the Sharia rules.
Property
Investing in property is a great way for Muslims to invest. The only caveat is that if a mortgage is obtained it is deemed to be a halal mortgage without any element of riba.
Prohibited Industries
Any halal investment must be in accordance with the Sharia principles mentioned above, and must be done with consideration of ethics and social justice. Companies whose main business goes against the central tenets of Islam are considered universally unacceptable as investment opportunities.
There are certain industries that are deemed to be unethical or at risk of causing harm to society, and Muslims should therefore avoid opportunities in these sectors:
- Industries manufacturing, promoting, advertising, or selling alcohol
- Industries manufacturing, promoting, advertising, or selling cigarettes or drugs
- Banking products or financial transactions that include interest (riba)
- Any industries related to gambling
- Industries related to prostitution or pornography
- Industries relating to pork
Sharia law prohibits investing in industries and businesses where at least 5% of their income comes from unethical sources (this is known as the 5% rule). Before investing in any business, Muslims should check out the financial statements and positioning of the company and do some research on their sources of income and profits and where they are derived from.
Halal Investment - What To Look For
When undertaking due diligence prior to investing, you should consider the following 3 types of investing opportunities:
1. Companies with halal practices - these are known as clean companies (from a halal investment perspective) and are companies that operate in a completely halal way. These companies operate within the Sharia finance rules, and have a clear halal audit trail.
2. Companies with haram practices - these types of companies operate within prohibited industries such as gambling and alcohol.
3. Mixed companies - these companies may have halal practices but these are mixed with haram practices or activities.
For halal investors, option 1 is always the best option as there is no overlap of the halal-haram considerations. Companies that have a cross-over between halal and haram should be avoided.
As one of the fastest growing finance sectors, Islamic finance has opened up many opportunities for halal investors. In the UK alone, there are many banks that offer specialist investing products, loans, and savings accounts.
Conclusion
Islamic finance promotes the concepts of ethical financial management and investment and reciprocal profits. The use of interest, risky investments, and unethical industry investment is discouraged. Halal investing is a growing financial niche, and it is available for Muslims and non-Muslims alike. Investing in products that are Sharia compliant is not difficult or impossible, it just requires some information gathering and due diligence.
Prominent private equity institutions like Gobi Partners have realised the growing demand for halal financial products. Over the last decade, more and more financial institutions and foreign exchange markets have taken steps to place themselves in the Islamic finance and private equity market. High net worth individuals in emerging markets such as Africa and the Middle East are entering the private equity investment market rapidly and this has led to an increase in demand for Sharia compliant investment opportunities. Islamic finance is no longer considered to be a niche and exotic sector within the banking industry.
Of course, the most important factor behind the growth of the Islamic finance industry is that Muslims make up almost a quarter of the world's population. The Muslim investor base is large and it is growing. This growth has not been lost on wealth managers and banks who are keen to tap into the wealth and investment funds in the hands of wealthy Muslims. Coupled with the economic expansion of many Muslim countries, it is likely that halal investment products will become more accessible within the next 10 years.
As the Islamic finance sector continues to grow annually, a faith-based approach to investing and trading is becoming more mainstream. However, the application of Islamic finance to investment products needs to be undertaken and can be nuanced, so always make sure to check the financial information of any company you are considering investing in.
IS THERE A HALAL INDEX FUND?
Yes, there are many options these days for those looking for halal index funds.
Index funds have long been known as one of the best and easiest ways to invest your money. The increase in the availability of halal index funds, that is funds that comply with Islamic Sharia rules, means that there is an even greater opportunity to maximise your investments without breaching Islamic finance principles.
Halal index funds enable investors to invest in a wider selection of stocks all within one fund.
WHAT ARE INDEX FUNDS?
An index fund is essentially a fund that follows what is known as a benchmark index, for example, Nasdaq 100, FTSE 100, and the S&P 500. Index funds are a portfolio of stocks and bonds.
Index funds are generally regarded as a passive form of investing. What this means is that investors who invest in index funds do not have to actively manage their investments.
The index fund will aim to mirror the index they track, they do not need to be actively and constantly managed.
Exchanged traded funds (ETFs) are those funds that are traded on exchanges and usually ETFs will track a specific index. EFTs offer investors a basket or bundle of assets that can be traded. The result is that the portfolio is diversified and the risk is deemed to be low, especially in times of economic growth.
Index funds are popular with all kinds of investors from angel investors, stock investors, new investors, and those looking for responsible investment options.
Difference Between Mutual Funds And Index Funds
The main difference between mutual funds and index funds is that mutual funds need a great deal more active management by fund managers. These fund managers actively choose the investments and manage the mutual fund and this leads to increased management fees and costs.
Before making any kind of investment in index funds you should make some inquiries about the fund, read online information from the relevant website and try and look into the methodology the fund uses (this includes yield, capitalisation, and price).
HOW DO INDEX FUNDS WORK?
Index funds work by investors investing their money in to an index fund that has been created. The money is then used to invest into the companies that comprise the particular index fund chosen. This means investors are able to diversify their portfolios and invest in companies they want to.
For example, if an investor invests money in the S&P 500. This index fund essentially tracks the performance of 500 of the largest companies in the USA. The S&P 500 is one of the largest and most popular index funds on the market.
Investing in companies via index funds means that investors' money is linked to, and tied up with, the performance of the companies within the fund. Many of these index funds have a very wide range of companies within the fund.
INDEX FUNDS WHAT ARE THE RISKS?
As many of the most popular index funds are diverse, this means they are less risky for investors. The reason the risk is lowered with index funds is that there are usually many companies within the fund, so all the investment is not tied up with the performance of one company.
Index funds are known for offering what is considered to be a broad market exposure for investors, with very low operating costs and risk. Index funds are popular with people who want to use the fund as a pension and plan for retirement.
Index funds are normally managed by a fund manager whose employment is based on ensuring that the fund is managed and tracked properly.
Sharia Principles Relating To Index Funds
The Sharia rules that relate to investment funds are the same rules that apply across all financial transactions. Understanding these halal investing principles is essential before choosing where to put your money.
They include the following:
- There should be no element of interest (riba)
- The investments should be ethical and should enhance communities and society in keeping with the social justice element of Islamic finance
- There should be no element of speculation or gambling (maisir)
- Both parties in the transaction should share the risks and profits
- There should be no transactions involving uncertainty (gharar)
- There must be asset backing - this means that every financial investment and transaction must relate to a tangible asset
- The industries, business, and companies within the fund should not be deemed to be impermissible in Islam
WHAT INDEX FUND IS HALAL?
The aim of halal index funds is to create long term appreciation of the investment funds via a diversified portfolio. Revenue is generated if the portfolio increases in value.
This portfolio is securities and investments are compliant with Islamic finance investment principles as laid down by Sharia laws.
Two of the largest index funds are the HSBC Islamic Global Equity Index Fund (halal) and the Vanguard FTSE 100 Index Fund. In the United States, the Dow Jones Industrial Average is one of the most popular funds to invest in. However, there are other index funds that meet the Sharia principles of halal investment. The numbers in the name often refer to the number of companies included within the index. For example, the FTSE 100 includes the largest 250 companies that are currently listed on the London Stock Exchange.
Before investing, always make sure you have done your due diligence and that the index fund you are investing in has been certified as compliant with Sharia rules.
For Muslims, the main incentive for investing in halal index funds is that they comply with Islamic finance rules and regulations. Any stock or bond within a halal index fund needs to be compliant with Sharia rules relating to investing.
ADVANTAGES OF INVESTING IN HALAL INDEX FUNDS - IS INVESTING IN A FUND HALAL?
One of the main advantages for any individual investing in a halal index fund or product is knowing that you will be investing your money in funds that comply with Sharia principles. Halal index funds also take care to ensure that the money is not invested in industries prohibited by Islamic finance principles (such as the gambling, alcohol, and porn industries).
For investors who want to invest in an ethical way that does not adversely impact society, then halal index funds offer the opportunity to do that. The relevance of halal index funds has grown significantly in recent years with the increase in demand for Sharia compliant and ethical investment options.
There is a great deal of global movement towards more responsible investing and halal index funds meet the criteria for ethical investing.
In the United Kingdom, index funds are regulated by the Financial Conduct Authority.
Considerations For Investors Wanting To Invest In Halal Index Funds
Investment in any kind of fund comes with its own risks. You should always seek to do as much research as possible before you invest.
Some of the key risks relating to halal index funds include:
- Risk of the investment value going down
- Exchange rate risks - if the economy and the markets are volatile then the exchange rates could fluctuate and affect your investment gains
- Tracking risks - whilst index funds will track the index, you should expect to see occasional differences in the gains
- Operational risks - as with any fund, halal index funds could be subject to operational and compliance risks which could affect any profit or return generated
LOOKING FOR THE RIGHT HALAL INDEX FUND - IS THE S&P FUND HALAL?
In addition to the points raised above, if you want to invest in a halal index fund then you should look specifically for:
- Confirmation/documentation that the index fund has been certified as being compliant with Sharia rules
- The scope for diversification - the greater the diversification the lower your overall risk
- Fund fees - check what fees your investment will incur
- Foreign companies - looking at companies abroad is a great way of diversifying your portfolio and finding halal investment funds
- Minimum investment levels - check to see if there is a minimum investment level required for the fund you are interested in. Many halal index funds are accessible and have reasonable charges for every level of investor
- Information - check what information is available on the index funds you are interested in. If you have any questions find an expert who can help you with your queries
As halal index funds grow in popularity across the globe it is important to find the fund that works best for you. Currently, Apple is deemed to be one of the largest holdings in the S&P Shariah Index.
SAVING VERSUS INVESTING IN INDEX FUNDS?
Whilst is it always a good idea to have savings, if you are comfortable with taking small risks and want to diversify your investment portfolio, then halal index funds are the way forward.
If you are risk averse and do not want to deal with any market fluctuations, then it is probably best for you to maximise your savings. However, in the current economy savings are not the best way to use your money. Also, for Muslims who are not permitted to make use of high interest savings accounts, looking into index funds is a good way of earning revenue from the money they have.
Halal index funds are a great way for beginners to invest in the stock market. Index funds enable investors to own a share in a company for relatively low cost.
The company that manages the fund will do all the running around and hard work so you do not have to.
WHAT IS STUDENT FINANCE?
Student finance in the United Kingdom is funding that is available for students to access to help cover the cost of their further education. The organisation that is responsible for administering and calculating the extent of the student loan payment is the Student Loans Company.
The Student Loan Company was founded in 1990 and was created to provide students with financial support towards their further education. Currently, student finance can be applied for by students to pay for their university tuition fees and living costs while they are studying.
Every student in the UK is entitled to a loan to cover tuition fees. Tuition fees tend to be decided by the universities and the Student Loan Company will make the payment direct to the educational establishment. Currently, in the UK those studying full time can receive up to £9250 per annum towards tuition fees, and additional funds for living costs known as the maintenance grant.
Repayment Of Student Loans
Student loans need to be repaid in full whether or not the student completes the university course or not. The amount you repay depends on your income and is deducted from your salary in the same way National Insurance and tax are deducted.
You become eligible to repay your student loan (with interest) once your income exceeds a certain threshold. In the UK this threshold is currently around £25,000 per year. Repayments are calculated at 9% on sums over the threshold, and the repayment is subject to interest charges.
WHAT IS MEANT BY HALAL STUDENT FINANCE?
Halal student finance in the UK refers to those financial arrangements that students can access to advance and fund their further education. Any halal student finance or loan needs to be compliant with Islamic finance and Sharia principles relating to money.
Specifically, Islamic student finance means that there should be no interest payable or charged on the loan or fees associated with education. Islamically, interest is considered to be haram and should be avoided at all costs.
The concept of halal student finance is structured to ensure that is adheres to Sharia rules and that the financing of education is compliant with ethical and religious rules. The main principle to be aware of is that the arrangement must not involve any form of interest and the transaction should be non-exploitative and transparent.
For many Muslim students, not having access to halal student finance via the Student Loans Company means they do not pursue their further education goals. The main reason for this is that the current student loan system is based on interest repayments.
Student Loans And Interest
Interest on student loans is an integral part of the system that funds further education. This is generally how student loans operate:
- Student applies for university, is accepted on to the course, and then makes a student loan application.
- There are two main elements to the student loan:
- Tuition fees that cover the cost of the course tuition
- Maintenance loan that is aimed to help with the living costs including rent, and books.
- To be eligible for a student loan you need to be resident in the UK and have been accepted on to a course.
- Repayment of the student loan includes interest and the rate of interest depends on factors such as when you took out the student loan. Repayment only begins post graduation and once you earn over a certain threshold.
- Interest on the loan accrues from when you receive the funds until the full loan is repaid.
In addition to student loans, there are also scholarships and bursaries available for some students. Postgraduates can also apply for student finance but whether they receive it or not depends on their circumstances.
Before considering any form of loan it is important for you to gather all the information relating to the loan and how it impacts you now and in the future. Whilst many see student loans as an investment in the future, there have been concerns raised about the inability of Muslim students to access student finance.
WHY IS IT IMPORTANT FOR MUSLIM STUDENTS TO ACCESS HALAL STUDENT FINANCE?
Muslims want to be able enter and partake in higher education without breaching Sharia rules. Currently, as the UK student loan system is interest-based, this precludes many Muslims from being able to access the funding they need to study further.
Islam prohibits interest and at the moment there is no interest-free funding option for students. There is a need for student finance based on Islamic finance principles that form part of the student loan scheme in the UK.
It's not only the interest element that is a problem for Muslim students. The existing student loan system is subject to change and this could fall into the remit of gharar (uncertainty) in Islam which is discouraged.
Without doubt, a halal payment system for Muslim students will facilitate greater inclusion in the education system.
Islamic Finance And Student Loans
Some key features of a halal student loan include the following:
- interest free loans: it goes without saying that any form of student finance must ensure there is no interest being charged or paid in order for the loan to be deemed halal. Instead, what is expected to happen is that the lending institution or bank charges fees or alternative structures to fund the transaction.
- Ethical: halal student finance cannot be unethical. This goes against the basic Islamic finance principles. Any halal form of finance or funding needs to steer clear of haram industries such as gambling, porn, and alcohol.
- Transparent: for a student loan arrangement to be compliant with Sharia rules, it must be transparent and clear. Both parties in the transaction should fully understand the terms which themselves should be clear and non-ambiguous.
- Risk and profit sharing: a key component of Islamic finance is that there is adequate profit and risk sharing between the parties. The student should not bare all the responsibility and risk in this kind of arrangement.
Consultation On Halal Student Finance
In 2014 the government launched a consultation relating to Islamic finance based student loans. What they found was that of the 20,000 respondents, over 90% stated that there was a demand for Sharia compliant student finance.
In March 2023 the government in the UK (having consulted on lifelong loan entitlement) confirmed that although a Sharia compliant student finance product was not available, it was committed to funding an alternative form of finance for students.
The government discussed several criteria that should be applied in a halal student finance system including:
- repayments should be easy to make
- any alternative system should be operated through the student loans company
- debt and repayment levels should be the same as they are for other students
- the service should be easy to use and transparent
Halal Student Finance And The Takaful System
At the time they were considering halal student finance options, the government concluded that a takaful system would be most appropriate. In Islam takaful refers to Islamic insurance and is based on cooperation and mutuality.
Takaful systems operate without insurance or gharar.
Unfortunately, no halal student finance option ever really emerged. Instead the government focused on other areas of student finance and simply concluded that they would continue to consider halal student loans.
Whilst government controlled and regulated student loans may not be available as yet, there are still halal finance options available. Some financial institutions are offering Sharia compliant loans that could be used for education.
Tips For Students Who Want Halal Student Finance
For students who are looking for halal student finance alternatives, here are some options you can consider:
- Research Islamic finance products and services, including this Sharia-compliant investment guide
- Look into Islamic scholarships
- Speak with Islamic finance advisors
- Speak to your university finance team and ask them for details of hardship funds or grants
- Consider interest-free loans from family
None of the above are ideal for Muslim students but could provide alternative halal funding for further study.
The future of halal student finance is dependent on many factors including the demand, the economic landscape, and the continued growth of Islamic finance. The Islamic finance industry is innovative and dynamic and could partner up with educational establishments in the future.
Increased awareness and education about the need for halal student loans is also something that could potentially speed up the availability of halal loans. Muslim students need to stay informed and alert and always explore all the options available to them before deciding against pursuing further education.
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