What is happening about halal student loans?
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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CAN MUSLIMS INVEST IN GOLD?
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is widely recognised as a global leader of maintaining Islamic finance standards.
The rulings of the AAOIFI are accepted across Islamic markets. the AAOFI has led to many Islamic finance and Sharia-compliant gold products and services including investment options and accounts, EFTs, gold saving plans, and spot contracts.
IS INVESTING IN GOLD HARAM IN ISLAM?
According to the AAOIFI, there are certain standards that should be met when any Muslim considers investing in gold. These include the following:
- Gold should be traded on a hand to hand basis
- Gold can be jointly owned
- Gold ownership can be constructive or physical
- In each case, the gold should be completely allocated (with no ambiguity re ownership)
- Allocation can take place through settlement, certification, confirmation, or receipts.
Under Sharia rules, gold trading is haram if the following criteria are not met:
- the exchange of any metal including silver for silver and gold for gold must ensure that they are of equal weight and worth
- there must be an on the spot cash payment (no future options)
It is also very important to note that there can be no element of interest (riba) in the trade. When it comes to futures and options riba can sometimes occur in the deferment of the delivery or in the payment structure. To ensure riba is avoided, make sure the deal or transaction takes place and completes on the spot
WHEN IS GOLD TRADING NOT HALAL?
It is important to remember that whilst gold trading is deemed to be halal, speculative trading or gambling of any nature is not permissible in Islam.
For example, gold trading that involves futures and options contracts which usually involve elements of speculation could be deemed to be haram.
Under Sharia rules, a key component of compliance when it comes to investment and trading is that the asset should be physically backed. This is easy to achieve with gold as it is a real physical asset.
However, Muslims need to be aware of the Islamic finance rules relating to investment and trading, and the fact that gold is deemed to be a rabawi item.
This means that gold in itself cannot be traded for speculative purposes or future profit. It is halal to use gold as medium of exchange and a form of cash. Also, it is permissible to own gold as jewellery.
HOW CAN I INVEST IN GOLD IN A SHARIA COMPLIANT WAY?
To invest in a Sharia-compliant way you need to make sure that you comply with Islamic finance investment principles. You have to ensure that any investment portfolio is secured and managed in the correct way. Consult knowledgeable experts and ensure you understand Islamic finance rules.
Make sure of the following:
- Use a credible and acceptable form of payment. This could include bank transfer, bankers draft, cash, coin, or Sharia-compliant credit.
- The gold must be physical in the form of jewellery, gold coins, or bars.
- delivery and completion of the transaction and finance should occur on the spot
- Work with reputable agents who have verified transactions and parties and can validate the Sharia compliancy. In the UK and worldwide there are many banks and agents who are certified to work within the Islamic finance market.
- Whether you are a seller or a buyer, make sure you undertake your own due diligence and the terms of any investment are clear before you sign up to deal.
Managing and investing wealth in a Sharia-compliant way is the responsibility of all Muslims. It is imperative that Muslims ensure that as customers, sellers, investors, and buyers they are working towards compliance with Islamic rules and learning information about gold trading.
ARE GOLD CHAINS ALLOWED IN ISLAM?
Muslim men are not permitted to wear gold jewellery or adorn themselves in gold in any form. They are allowed to wear silver jewellery or jewellery made using stones.
Muslim women, however, are permitted to wear gold chains and jewellery.
When it comes to white gold, the ruling is the same. It is not permissible for men to wear white gold. This is due to the fact that white gold has high percentages of gold within it. This also applies to gold plated jewellery or any design or jewellery that contains gold as its main component. For Muslim men, it is best to stay away from gold jewellery.
HADITH RELATING TO GOLD?
One of the well-known hadiths relating to gold in Islam is the one relating to the Prophet Muhammad (PBUH) where he states that:
"Gold for gold, silver for silver.... like for like, equal for equal and hand to hand, then you may sell as you wish..'.
This hadith sets out some guidelines for transacting on gold and silver.
IS IT A GOOD IDEA TO INVEST IN GOLD?
There are many a website and platforms available that can provide you with information relating to investments and trading.
Gold trading is halal in Islam, and with gold prices increasing at high rates in the last few years alone, it is always a good idea to invest in gold. When it comes to the actual investment, there are many different options for Muslims looking to invest in a way that is Sharia-compliant and also yields a good return on investment.
Investing In Gold - Tips
There are various ways you can start to invest in gold today:
- look for reputable companies and agencies to use
- hold bullions or coins (or even shares)
- buy gold jewellery
- research and review EFTs and how they work
- avoid any form of riba
- focus on investing in physical gold
- diversify your investments
- consult Islamic scholars
Make sure you understand and make plans for the storage of any gold you buy. It is difficult and risky to store large amounts of gold (or any asset) at home so seek out storage companies who can help you.
HOW PROFITABLE IS GOLD TRADING AND IS GOLD TRADING HALAL?
Gold trading has always been profitable. Whether you trade in person or online, you need to understand that gold is expensive, and so trading and investment in it comes with its own costs. For example, spot price for gold can range between 5-10% so bear this in mind.
The easiest way to invest in gold is to actually buy it. Another great form of gold investment is EFTs. There are a wide range of Sharia-compliant EFTs on the market in the UK, USA and worldwide.
If you are looking at buying bullion and bars then this can be done via companies that can hold the gold asset for you.
IS LEVERAGE TRADING HALAL?
Leverage trading refers to borrowing funds in order the increase or amplify the potential return on any investment. As with any kind of trading, it is deemed to be halal as long as it conforms to Islamic rules about trading.
When you leverage trade you are borrowing cash to exchange with. This comes with greater risk than not borrowing. Is Islam, leverage trading would be deemed to be haram if interest is charged, or if the dealer of the leverage is using it for speculative activities.
As long as you use a halal broker who understand the Islamic finance rules, then leverage trading can be halal. In recent years the Islamic finance sector has created Sharia-compliant services that offer leverage trading or services similar to it.
What is Riba in Islam? Riba refers to exploitative gains and unequal exchanges, this includes interest payments (made or received) that are strictly prohibited under Islamic finance rules. The concept of riba is seen a wholly unjust in Islam as it places a financial burden on the recipient of funds.
Riba is prohibited on the grounds that it goes against the Islamic principles of fairness, societal wellbeing, and justice.
WHY IS INTEREST (RIBA) FORBIDDEN IN ISLAM?
In any transaction involving riba, an imbalance is created between the borrower and the lender.
The lender receives a guaranteed profit which is the interest payment paid over and above the actual loan amount.The lender does not assume any of the risks in this transaction, and Islamic finance places emphasis on risk and profit sharing.
Interest is considered one of the major sins in Islam. That alone means that many Muslims will shun interest-based products and services.
WHAT DOES THE QURAN SAY ABOUT INTEREST?
The Quran has multiple verses that explicitly prohibit riba. These include the following:
- Quran 3:130 - this verse states 'O, you who believe, do not consume riba, doubled and multiplied, but fear Allah'.
- Quran 2:275: this verse states 'Allah has permitted trade and forbidden riba'.
WHY IS RIBA CONSIDERED SO HARMFUL?
The absolute prohibition on riba goes beyond the concept of exploitation and usury. It encompasses the concept of ensuring that social, economic, and ethical considerations are part of financial transactions.
Islam emphasises the greater societal good and social wellbeing. Management of funds and income should not be used in practices that cause harm to others. When a borrower is obliged to repay a loan with interest, this is seen as an unfair in Islam. Not only does the borrower have to pay back more than they borrowed, but they face the burden of an increased repayment and potentially a debt trap. Riba is also seen as enabling the concentration of wealth amongst the rich, whilst the poor get poorer.
Another important element of riba that is deemed to be harmful to society is that interest itself generates an income but that income is not linked to productivity of economic activity. Riba is a risk-free gain that does not benefit society.
In terms of moral and societal degradation, riba is fundamentally exploitative and undermines Islamic principles of fairness and compassion. Interest-based systems are dependent on the markets remaining stable, so having a riba free option leads to greater financial stability.
Whether you work in industry, or are planning a large project, there are Islamic finance services that are Sharia compliant that can meet your needs.
At the core of the ban on interest lies the Islamic teaching that wealth should be earned honestly and not through exploitation. If someone comes to you in need and asking for a loan, and you are able to lend them the money but charge interest, you are exploiting their need and benefiting financially.
In very simple terms, the ban on interest relates to promoting fairness and encouraging productive investments and activity. This will ultimately lead to a more compassionate and equal society.
WILL ALLAH FORGIVE RIBA?
For those who partake in riba, whether that is charging or paying interest, the question of whether Allah will forgive them is connected to the wider Islamic concept of tawbah (repentance).
Muslims view Allah as the most forgiving and the most merciful and repentance is encouraged.
However, any repentance must be sincere and when it comes to riba it means that the person must have sincere regret partaking in riba and must immediately stop. There is also an obligation not to return to riba at any stage of life and to try and rectify any harm caused.
HOW TO AVOID RIBA IN MODERN BANKING SYSTEMS AND ECONOMIES?
Whilst it can be challenging to completely avoid riba in the modern and Western banking system, there are interest-free alternatives available in the modern financial markets. The growth of Islamic finance means that more and more services and products are available for those wanting to comply with Sharia rules relating to financial transactions.
The Islamic finance infrastructure and architecture are continually in development and construction.
Products including halal mortgages, halal funding options, halal student loans, and halal index funds mean Muslims can partake in the banking systems without breaching Islamic rules. If you want to explore halal investment options, there are many alternatives to interest-based financial instruments available today.
WHAT ABOUT STUDENT LOANS, CREDIT CARDS, AND MORTGAGES?
All types of financial products are available on the financial markets these days. You should always undertake due diligence to assess the Sharia compliancy of financial products.
Halal and interest-free loans have revolutionised professional industries that focus on societal wellbeing and social responsibility.
There are even interest-free cryptocurrency and bitcoin options available within the United Kingdom and beyond.
ARE THERE ANY PERMISSIBLE FORMS OF INTEREST?
The short answer to this question is no. Riba is strictly prohibited in Islam. However, this does not mean that you cannot find alternative financial products that can provide you with the funding or returns you need.
Whilst there is no form of interest that is allowed, there are Sharia-compliant financial contracts that are sustainable alternatives. These include murabaha and musharaka contracts that enable risk and profit sharing.
HOW CAN I HANDLE UNAVOIDABLE INTEREST FROM SAVINGS ACCOUNTS?
For Muslims, it can be challenging to deal with unavoidable interest from savings accounts, particularly if you live in the West. However, if you have an account that, by design or structure, is based on interest then there are some actions you can take to make sure you adhere to Islamic rules about finance.
- Monitor your account
- Switch to an Islamic bank as soon as possible
- Check with your bank to make sure you are not receiving interest on savings and if you are then ask to waive the interest
- Search for interest-free accounts
- If you do accumulate interest then donate that interest to charity. Muslim scholars and experts have confirmed that you can donate the money received.
- When donating interest do not expect to receive any reward.
- Remember, whilst you can personally benefit from riba, it can be donated to those in need via a registered charity.
HOW CAN I NAVIGATE MODERN BANKING AS A MUSLIM?
Whether you are a student looking to finance your education, or a business hoping to fund new processes and equipment, it can be difficult to operate within interest based banking systems. Here are some key things you can be doing:
- Educate yourself on Islamic finance rules
- Seek out Islamic finance loans, experiences, and markets.
- Support Islamic finance initiatives
- Choose Islamic banks and companies who facilitate riba-free products
- Look for and ask for halal alternatives
- Consult with experts and scholars
- Make ethical investments and avoid any industry, job, product or sector that is rooted in haram activities.
- Encourage financial innovation, policy, and ideas
- Build networks with other Muslims
WHAT ARE THE SPIRITUAL CONSEQUENCES OF ENGAGING IN INTEREST-BASED TRANSACTIONS?
Every Muslim should understand that involving themselves in interest can have spiritual consequences. This can include a spiritual disconnection from the teachings of Islam and Allah's commands. It can also mean there is greater accountability and punishment on the day of judgement.
Not only is interest seen as a bad practice, spiritually it can lead to a loss of blessings and barakah in earnings and family life. There is a whole ethical decline associated with riba that can lead to a mindset that prioritises money and wealth over wellbeing. For Muslims, this is frowned upon.
For those engaging in riba, the spiritual consequences go beyond financial implications. They include a deep sense of moral and ethical responsibility, understanding and complying with Allah's commands, and the pursuit of divine approval.
HOW DO ISLAMIC BANKS OPERATE WITHOUT INTEREST?
Islamic banks operate without interest by adhering to Islamic finance rules relating to operation. Islamic finance products focus on profit and loss sharing and alternative contractual arrangements.
They are able to offer alternative halal products by offering joint venture arrangements, partnerships and Islamically compliant services. Islamic banks also partake in ijarah which is effectively a form of leasing.
Many people wonder how Islamic banks make money and the answer lies in understanding the different forms of products and services they offer.
For example, in a murabaha contract the bank could purchase a house and instead of charging interest on the sale, they sell it to the purchaser for the purchase price plus a mark up. The bank earns a profit via the mark up and not by charging interest.
WHAT ARE HALAL ALTERNATIVES TO COMMON FINANCIAL PRODUCTS?
There are many products and services on the market that offer great alternatives to conventional interest-based services. Here are some listed below:
- Cost-plus financing loans (murahaba)
- Partnerships or joint ventures (musharaka)
- Leasing (ijarah)
- Benevolent loans (qard hasanat)
- Safe custody accounts (wadiah)
- Islamic bonds (sukuk)
In the fast-paced and dynamic world of cryptocurrency and blockchain, staking is emerging as a popular way to earn passive income. This has led to discussions and debate about whether staking crypto is halal.
This article will examine the concept of staking and the considerations relating to whether it can be deemed to be halal.
WHAT IS STAKING IN CRYPTOCURRENCY?
In cryptocurrency staking occurs when investors lock cryptocurrency for a specific period of time. This is done to support the blockchain operation. The investor will lock in their digital tokens to a specific blockchain network and in return, they will earn rewards.
For the blockchain network, it means that transactions can be validated and for investors and individuals it means they can earn rewards without having to sell their crypto.
In comparison, bitcoin and staking are not linked. Bitcoin tends not to use the staking mechanism. Instead, it uses the proof of work mechanism where miners compete with each other to problem solve maths puzzles to validate transactions.
Any locked up cryptocurrency acts as collateral to support the blockchain network. This means that it is no longer available for use and therefore staking reduces the liquidity of the asset that has been staked for any given project.
HOW DOES STAKING WORK?
Crypto staking is a consensus-based mechanism. It enables token owners to validate a crypto chain by adding blocks. Using existing crypto to validate holdings as proof of stake on a blockchain.
Any newer blocks are also validated using the proof of stake mechanism. As the crypto funds are effectively locked in for a period of time this supports the activity of the blockchain. For the investor or asset owner who are using the blockchain platform, they earn staking rewards which are similar to earning dividends on their assets.
There are two main forms of staking:
- Independent staking : this method is used when an individual deposits their crypto token as a single and sole validator on a blockchain. There is usually a minimum token threshold. For investors using this form of staking they aim to benefit from being the sole beneficiary of rewards earned.
- Staking pools: staking pools are when there are a group of people who effectively pool their crypto tokens. This is the preferred method for newcomers to staking who want to share the risk with others.
Staking involves contractual terms that identify the obligations and the rights of the parties in the staking process. These terms can vary depending on the nature of the staking.
Sharia Compliance And Staking Crypto
Islamic finance provides the conceptual and foundational basis for operating financial transactions in line with Islamic rules. Operating in an Islamic finance framework means you use your finances to ensure you manage funds in an ethical and socially responsible way.
When considering crypto staking, it is important that you do all your due diligence. Investors or those staking their crypto need to understand the mechanism of staking and screen it for Sharia compliance. You need to fully understand what happens once you deposit your crypto onto a blockchain network.
In a proof-of-stake system, any crypto being staked is used to strengthen the consensus based network and improve the integrity of it. The profit is made from the rewards you receive for investing in the blockchain's sustainability.
Always make sure you understand the level of risk involved, the projects involved and the legitimacy of the network before staking your assets. A problem could arise if the blockchain itself is deemed halal but further down the line it starts to become involved in haram industries. Management of your crypto wallet should follow the same Islamic principles as your physical wallet. This requires ongoing due diligence.
Considerations
As a starting point, you need to ensure that the blockchain is not associated with any haram industries such as gambling, alcohol and pork. Look for morally sound initiatives and well-researched projects that have already been screened.
Another important point to consider is riba / interest. Whilst earning rewards via staking is not considered to be riba, examine the structure and payment of the rewards you will be generating. For many, staking a deposit is not seen as a loan so interest cannot therefore be generated. The reward is seen as the benefit of a joint endeavour, as more people join the blockchain, more rewards are achieved. The purpose of the stake is to improve the legitimacy of the network and to maintain it.
Another consideration is the governance and the values of the blockchain platform. Make sure that the governing values are ethically sound.
IS STAKING HALAL?
Consider all the advice in this article, but in particular, if you want to determine if any staking activity is halal you need to evaluate the halal status by ensuring:
- there is no interest / riba involved in the staking or the investment of any capital
- There is no excessive uncertainty or ambiguity - the terms required must be clear
- look for ethical compliance
- focus on asset backed transactions and stay away from gambling
- seek an expert opinion
- review the market the blockchain might be linked to and evaluate it for Sharia compliance
- review the other users of the blockchain
- make sure any incentive being offered is halal
- check the governance, infrastructure, platform and protocols being used
- learn all you can about your stake and the price
Staking in its traditional form does not currently involve any kind of loan or interest. There is no borrowing of money or any interest payment. Essentially, the software involved generates tokens as rewards. These rewards do not impact or come from any other users currency so there is no exploitation of others via investment or trading.
Practical Steps For Muslims Considering Staking
For anyone looking to stake crypto, it is essential that you seek guidance from scholars who are fully aware of Islamic finance concepts and principles when it comes to money matters. Look for blockchain platforms that are already established within Islamic networks.
Some of the benefits of crypto staking include having the opportunity to earn additional tokens (passive income). Also, as you are contributing to the security and efficiency of the blockchain network this could be seen as strengthening the decentralized platform for others.
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