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
- 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.
Explore more news
Green investments or sustainable investments are those that are deemed to be socially responsible with a positive impact on the environment and wider society. As a complete financial system, Islamic finance facilitates green investments and what this means for investors is an increase in sustainability growth. When green investment and Islamic finance come together they drive sustainable growth.
Islamic finance is growing in popularity and was a system devised many centuries ago. In comparison, the green industry is relatively new. Islamic finance's emphasis on economic justice and focusing on marginalised communities and organisations is the foundation of its principles.There are increasing collaborations between the green industry and the Islamic finance industry.
They complement each other and offer benefits for organisations, and both client and customer.
WHAT ARE GREEN INVESTMENTS?
Green investments are also known as socially responsible investments or sustainable investments. They are centred on those investments that positively affect society, organisations, and people.
Green investments range from renewable energy, to clean technology, sustainable agriculture, green bonds to impact investing.
Green investing aims to ensure that investors who want to align their financial transactions with their ethics can do so. That is not to say that green market investments do not provide good financial returns. On the contrary, like Islamic finance, green investing has proven to be revenue generating whilst also being eco-friendly.
Types Of Islamic Finance Based Green Investments
The kinds of Islamically compliant green investments are wide ranging. They cross various industries from agriculture, to environmental protection, to clean technology. Both Islamic finance and green investments focus on equity, regulation, risk management ,and understanding the needs of the parties.
ESG, that is environmental, social and corporate governance are all key considerations. Islamic finance is the financial tool that an institution can use to remain Sharia compliant and green focused.
With the alignment of both the green industry and Islamic finance, there are a great deal of products on the market now that are tailored to be green and Sharia compliant.
Let's have a look at some green products that are Islamic finance compliant:
- Ethical mutual funds: these kinds of mutual funds are managed in accordance with Sharia rules. When it comes to the actual investment, these kinds of funds only invest in projects and companies that meet both the Islamic finance and green criteria.
- Green sukuk: these sukuks are a type of bond that raise funds for projects that are environmentally sound and sustainable. The sukuks have to be Sharia compliant for them to be halal. Projects range from providing capital for clean water initiatives, decarbonisation, to renewable energy, technology, and agriculture.
- Real estate: green real estate funds invest in sustainable real estate projects and are financed by money that is generated and spent in accordance with Sharia rules. This means any loan comes without any interest payments being charged or paid. Often, ethical real estate investments take place in areas of crisis with a view to enabling local communities to transition away from the crisis in an affordable and ethical way.
- Microfinance: Islamic microfinance services and products are increasing in popularity. This is mainly due to them being regulated in the same way in the UK as other non-Islamic finance products (although, you must always do your own research - knowledge is key). Islamic microfinance can offer funding to SME businesses and individuals who are engaged in eco-friendly ventures and sustainable growth.
- Islamic stocks: if you look carefully you will see there are various Islamic stocks on the market that are green and sustainable. These stocks are usually in companies that are green focused and ethically sound.
- Islamic crowdfunding: when looking at sustainable and ethical finance models, then Islamic crowdfunding ticks all the boxes. For those with aspirations of raising funds for green projects, Islamic crowdfunding offers a great alternative for raising start-up funds.
Commonalities Between Islamic Finance And Green Investments
Both green investing and Islamic finance have many points of convergence and commonality. As models of investment, they complement each other. Both encourage and promote social responsibility and ethical investing.
It is important to remember that both green investment and Islamic finance have foundations in ethics, justice and social responsibilities. It therefore makes perfect sense that they are great partners in the financial world.
In addition, both Islamic finance and green investing principles share the following key principles:
- Prohibiting harmful activities and industries: one of the main rules of Islam is that we should stay away from harmful activities and industries. This means a prohibition in investing, managing or working in industries such as the porn industry, and the alcohol and gambling industries. Similarly, green investments tend to stay away from these industries as they serve no real green benefit to society.
- Sustainable development goals: Islamic finance and green investing play a significant role in promoting sustainable development goals. So, how is this achieved? it is done through the encouragement and support of economic growth, social wellbeing and environmental sustainability.
- Assessing the impact on society: both Islamic finance and green investments are focused on benefiting society as a whole. The aim is to positively impact society and sustainable development, whilst trying to ensure that wealth inequality is reduced and there is economic justice. Investing in industries that tackle climate change, poverty reduction, renewable energy, education, research, and innovation are referred over more profit based industries.
- Ethical screening behaviours and tools: in order to ensure that the investments are compliant with both Sharia laws and green principles, ethical screening is high on the agenda. Both the green investment industry and Islamic finance focus on ensuring that investments and industries are screened, their governance is clear, and policies are not exploitative.
HOW DOES ISLAMIC FINANCE RELATE TO SUSTAINABILITY?
Islamic finance is based on Sharia rules which provide the legal and financial framework within which to live, transact and behave. Islamic finance is more particularly focused on providing rules pertaining to the economy, business and finance.
Due to the very nature of the ethical way Islamic finance operates, this immediately irradicates the purely profit driven and interest based activities of conventional forms of finance.
Islamic finance has always been a key player in achieving and promoting sustainable development goals by:
- promoting poverty eradication
- promoting UN goals relating to sustainability
- Ensuring there is financial inclusion in all countries
- Holding banks accountable and insisting on interest free services and products
- promoting health and wellbeing including clean sanitation and renewable energy
- promoting better education and the eradication of interest based debt
- having strategies that focus on gender equality
- encouraging sustainable agriculture and food security projects
For anyone looking for green projects to invest in, in a halal way, then you must consult with financial advisors who are experienced and knowledgeable in both areas.
In the West investors are looking for more conscientious ways to invest. Neither green investment nor Islamic finance are taught at school or featured heavily in the news. However, the impact of the alignment of these 2 distinct industries is becoming more known in investment markets.
This strategic alignment is opening up major market opportunities for investors. ESG financing is expected to see huge growth in the next decade, as is investment in clean technology and net zero industries. There is clearly an appetite for financial products that are Islamically sound, but also sustainable and green.
Islamic finance, when coupled with green investment, is bridging cultures, finance models and inclusivity. It is an area of finance that is seeing exponential growth in major financial hubs such as London, Washington, Geneva, and Dubai.
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:
- Review your current pension fund.
- Find out if your pension fund provider is able to offer a Sharia-compliant fund.
- If not, ask if you can switch your pension fund.
- Check your pension fund information to see if there are any penalties or fees for switching to a Sharia-compliant provider.
- Research what Sharia pension fund providers are available and make sure they are fully Sharia compliant.
- Choose your new pension fund provider and open an account.
- 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.
WHAT IS QARD AL-HASSAN?
Qard al-hassan, also known as qard al-hasan, is an Islamic finance term that essentially refers to a loan that is interest free. Typically in a transaction that includes qard al-hassan, the borrower will repay the amount owing under the principal amount without any other mark up or interest payment being charged. Qard al-hassan financial products are compliant with Sharia rules that dictate that interest (riba) payments are not permissible, whether the interest is being paid or being charged.
These types of loans offer financial solutions for Muslims looking to borrow funds that do not include any interest payments.
Qard al-hassan loans are loans that are provided to help others. The word hassan itself means acceptable or good (of good faith). Islamic banking services are now offering qard al-hassan loans for both Muslims and non-Muslims.
Qard Al-Hassan Loans
In Islam and Islamic banking, Qard al-hasan loans do not have an interest rate element, and this means that businesses and consumers are able to borrow money on a goodwill basis. Generally speaking, qard al-hasan loans tend to be used for welfare purposes. The Quran stipulates that Muslims should endeavour to provide these types of benevolent loans where possible and to those who need these kinds of services.
"Establish regular prayer and give regular charity and give Allah Qard Hassan" (Quran 73:20)
The principle of qard al-hassan in Islam enables Muslims to further the social justice ethos that underpins Islamic finance. Islamic finance facilitates loans from those with the funds to those who need financial assistance without breaching Sharia rules. Qard al-hassan can be viewed as a loan agreement that is akin to giving charity. The borrower and lender sign an agreement confirming the terms of the qard.
HOW DOES QARD AL-HASSAN WORK?
In Islam, qard al-hassan works in the following way. A lender will lend a business or service an amount of money that they need (usually for social justice purposes). The principal amount borrowed will be interest-free. The borrower will then repay the amount of money borrowed without any interest or surplus payments owing. Borrowers are permitted to pay an additional amount back to the lender as a gesture of goodwill, but this cannot be done based on any promise or commitment.
Qard al-hassan loans do not increase over time or accumulate any interest charges like traditional loans do. This means they offer problem solving solutions for Muslims.
The most important element of Islamic qard al-hasan loans is that they are untouched by any form of riba. There should not be any reference or link to the economic market conditions and fluctuations, and the lender cannot ask for the return of the loan before the contractual repayment period ends.
Qard Al-Hassan - The Redistribution Of Wealth
Islamic finance systems focus on socio-economic justice and the enhanced wellbeing of society, especially the alleviation of poverty. Alongside sadaqa and zakat, qard al-hassan is an essential Islamic finance instrument of redistribution of wealth.
Qard al-hassan minimises the cost of borrowing and remains compliant with Islamic Sharia law.
Social Justice, Qard And The Islamic Finance Economic System
The Islamic finance economic system has always centred on principles of social justice (as mirrored throughout the practices and teachings of Islam). The focus of the finance system is to ensure and improve the overall wellbeing of society and using money to enhance social conditions.
Qard al-hassan is a key concept that acts as a crucial redistributive instrument. The distribution of funds from the rich to the poor aims to reinforce social unity and cooperation. As the global experience of, and appetite for, ethical finance options and factor analysis continues to grow, qard al-hassan is fast emerging as an important tool in the fight against poverty and the drive to ensure there is more financial freedom and equity for poorer communities.
As more and more Islamic finance companies and banks are offering innovative qard al-hassan products and financial services, project management for those customers and business operations working within the social justice sector will become easier and more accessible. Qard al-hassan services will start to become more readily available in banking and private sector financial industries.
The opinion of scholars is that qard al-hassan loans are problem solving as they facilitate the redistribution of funds that are compliant with ethical and Islamic finance principles. Islamic finance is facilitating financial freedom and investment options for those who have historically been excluded from traditional financial markets and industries that did not cater to their religious requirements.
According to Sharia law, qard al-hassan loans are deemed to be acts of good faith, and loans that help those in need. Advancement of news relating to qard products and websites, and information technology means that qard al-hassan financial services are more readily available and searched for online, especially in Middle Eastern territories. This has enhanced the supply and demand of qard services. Historically, qard al-hassan loans have proved to be effective for economic growth, enhancing employment, and alleviating poverty.
Stay informed on finance
