READER’S NOTE: HESA does not have connections to any organizations that offer interest-free loans.
As-salaam Alaikum.
Every once in awhile, someone in the student movement hears tell of interest in Islam being prohibited, thinks about student loans for a microsecond, and then comes up with the idea that student loans are “unislamic” and, hence, culturally inappropriate. This, in the past, has led some in Canada to claim that the whole student aid system needs to be revised and made more grant-reliant, all in the name of cultural sensitivity.
This is mostly bilge, for two reasons.
The first is that there are many ways to deal with the no-interest rule. Normally, Islamic banking gets around the problem of interest by having the bank co-own an asset while the loan is being paid down (Islamic mortgages are essentially rent-to-own deals); but, that’s admittedly difficult for a student loan where there’s no hard asset against which to borrow. But a Bai’muajjal, or credit-sale arrangement, is still possible: it’s simply a loan with a fixed installment plan at the end, which gives the lender a profit. With a bit of tinkering, the US Government’s graduated repayment student loan scheme, as well as the Swedish student loan system, would both meet that test – especially since there is no profit involved. Or, one could do as Malaysia’s student loan program does and simply replace “interest” with a “fee” that works exactly the same way as interest, but preserves the form (if not the spirit) of the Sharia.
The second reason is that many muslims simply don’t care whether or not a loan is Sharia-compliant. My colleagues and I at HESA recently saw evidence of this during some work we did related to the introduction of student loans in Indonesia, the world’s largest Islamic country. We asked 2000 students in various parts of the country if they would take a student loan were it offered to them. Just over half said yes; of the remainder, 88% said that loans were a good idea for some students, but not for them personally. The main reason that this group of students did not want a loan was because they did not need one. About a quarter of all students expressed some unease about student borrowing (though the percentage who specifically mentioned Sharia as the reason was much, much smaller) – but even these students expressed little unease about borrowing, per se – and, interestingly, three quarters of those who expressed unease about student loans had no problems with the idea of a mortgage.
Though it is theoretically be possible to create Sharia-compliant student loans, the market for them is tiny, even in Islamic countries. That’s not an argument against their being offered, but it is a reason to dismiss the notion that not offering them actually represents any kind of barrier to access.
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I appreciate your article, but personally I don’t think you have a right to dismiss that there is a barrier to access especially if you don’t represent all Muslim opinions on the matter – which are diverse and are far from homogeneous.
You’ve done research in Malaysia –> why haven’t you surveyed the opinions of Muslims in Canada or the US? The Canadian Muslims mentioned in the article you linked, citing cultural sensitivity, seem to be disagreeing with you. And I’m one of those Canadian Muslims who do disagree with you. I feel uncomfortable with loans that have the potential for interest – such as the interest that is charged after 6 months with OSAP. I have no guarantee of getting a job before that 6 month period pops up, and if I don’t, I’ll have to start paying interest – and I have a religious obligation not to do that, which I intend on fulfilling.
Furthermore, if you’re surveying the largest Muslim country in the world – wouldn’t questioning students about whether or not they would get a loan imply – to some degree – that the institution issuing the loan would have a high probability of satisfying Islamic requirements – as part and parcel of being in that country? So if they answer “Yeah, I’ll get a loan”, that could easily mean that they’re ok with it if it’s an Islamic loan.
I’d like to see some more of your data, and your research methods.
Introducing shariah-compliant student loans is something that needs to happen. And if, like you said, it’s so structurally similar to existing loan systems – then what’s so hard about accomodating a slightly adjusted version for the minorities who would want to use it. The “profit” (as opposed to interest) will still go back to the government, or whoever the issuer of the loan is.
What’s the big deal?
Hi Usman,
Thanks for reading our stuff. I don’t think there’s any big deal at all, in actually arranging sharia-compliant loans. I think the market is pretty small, but as a technical matter it’s not complicated at all.
Re: research in Canada or US – it’s a lot harder to do because they aren’t a very large percentage of the population and so it;s difficult to get good numbers (and administrative data doesn’t carry an identifier for religion). Although, now that you mention it, we may actually have some data on this from our panel survey which does ask about religion. I’ll poke around the data to see what we can learn, and report back.
We are going to publish the data on the Indonesian survey in the next six months or so. If you can’t wait, I’d be happy to show you the survey and methods any time (contact me via the info at higheredstrategy.com if you ever want to come by). in regard to your specific point about how students interpreted the question, I do think it’s safe to say that the students didn’t assume the loans would be sharia-compliant, because the question made it clear that the loans would be interest-bearing.
Thanks Alex,
I just wanted to let you know that I did enjoy your article. I found it well-informed, and it’s clear that you have an honest desire to make the journey through post-secondary education easier for all students. And I so appreciate that – because it is hard, and it’s reassuring to know that someone’s out there dedicating time to do research on the relevant issues.
My earlier response was a bit confrontational – and I do apologize. This is a personal issue for me – not just a series of statistics. I would have greatly benefited from shariah-compliant loans, as currently I’m not using OSAP, but other means to finance my education. I happen to be a part of that subgroup of students who do care about shariah-compliancy, and statements like “many Muslims simply don’t care about shariah-compliancy” do make me feel under-represented.
I do think it’s a misleading statement – because it omits the many who do care, and who would benefit from and utilize such loans.
I’m not trying to discredit the value of your study in Malaysia, but at the same time I don’t think it’s completely fair to conflate the perspectives of your survey respondents with those of us living on the other side of the world, in different circumstances, here in Canada. A better population to compare with would be Muslims living as a minority in a Western developed country. You’ll find that many Muslims in the UK for example, are making strong efforts to lobby for legislation allowing for government-issued shariah-compliant student loans. These are Muslims who see interest-based loans as clear barrier to access, and as a sample they are much more comparable to Canadian or American Muslims than Malaysian Muslims are.
Furthermore, even if there is only a minority of Muslims who would want shariah-compliant loans in Canada, I still feel like something should and can be done to accommodate them. Similarly, it might be that only a minority of Muslim students in Canada observe regular prayers – but almost every university campus has a dedicated prayer space, justified by the numbers of people who benefit from them.
I agree with almost all of what you had to say in the first half of your article – it was very well-informed, and accurate. It’s just the latter half that doesn’t sit well with me.
Your conclusion that “it’s [reasonable] to dismiss the notion that not offering [shariah-compliant loans] actually represents any kind of barrier to access,” is just plainly inaccurate. And furthermore, it’s a conversation stopper for those who already have so much red-tape to cut through to try and improve the system to accommodate for such loan programs. It’s these kinds of statements that politicians and government officials will cite to justify their complacency with the current system when some of us need and push for change.
Even if they are in the minority, there *are* those who simply choose not to enroll in post-secondary education because of their hesitance in taking student loans that may result in interest. I know of some personally, and it wouldn’t take more than a quick googling to find more examples of students like this. And there are plenty more who, if they had the choice, would choose the shariah-compliant loan as opposed to an interest-based loan. There are plenty who are at least hesitant, if not burdened, with the prospect of participating in an interest-based loan transaction.
To me there is a clear barrier for access – to which there is an easy solution that will, in your words, take just a bit of tinkering. And if there is an easy solution, I think it should be pursued wholeheartedly – I know of many whose lives would be made much easier this way.
Anyways, it was nice speaking with you. Looking forward to reading more of your posts in the future.
You can see the following pages for more information:
UK Muslims lobbying and coming to agreements with government for shariah-compliant student loans:
http://www.1stethical.com/wp-content/uploads/2012/06/alternative-finance-provision-statement-21st-June-2012-1.pdf
http://www.1stethical.com/2012/07/18/lobbying-for-a-halal-alternative-to-student-loans/
Interest-free loans provided by Muslim charitable organizations – in absence of wide-spread shariah-compliant loans:
http://www.isna.net/events/Special-Announcement/Islamic-Develoment-Bank-Scholarship-Program.aspx
Hi Usman,
I am currently in Pakistan and got admission in Rotman School of Business in Full Time MBA. The expenses are very high and I have around 40% assets to support the expenditure. Although I was hoping to get some scholarship but that has not materialized. Now I am left with no option but to get loan under CSLP scheme which bears Interest, and I have to reply till 3 June, 2013. If you can help me in getting Islamic Loan then please mail me at ranaimran82@gmail.com
@ Mr Alex:
I am NOT opting for Loan under Canada Student Loan Program because it bears Interest, therefore, I AM NOT GOING TO GET THE DESIRED MBA DEGREE.
So I am a living case for which Mr Usman is arguing. I googled Islamic Loan for Students in Canada and reached this page. I am fanatically searching for Islamic Student loans, otherwise, I will have to REFUSE the offer of pursuing my dream degree. What you say about this?
Regards
salam
I am thinking of creating an Islamic student loan program to help our Umma in US/ Canada to increase the level of education in Islamic families. I came into a new idea that I would like to hear opinions about. The idea is my organizations helps you to get education, when you are done and start a job you pay to educate another Muslim in the field same university. If the organization paid you 50k to get your diploma and in 5 years when you graduated it takes 60k to get the same diploma than this is what you pay back . the aim is to keep the value of the money so we can help more Muslim students, without fees or interest.
Hi Zak,
I am currently in Pakistan and got admission in Rotman School of Business in Full Time MBA. The expenses are very high and I have around 40% assets to support the expenditure. Although I was hoping to get some scholarship but that has not materialized. Now I am left with no option but to get loan under CSLP scheme which bears Interest, and I have to reply till 3 June, 2013. If you can help me in getting Islamic Loan then please mail me at ranaimran82@gmail.com
Regards
I am looking for interest free loan in US. I came across this site. You mentioned above that you are thinking creating an Islamic student loan program. Have you started or know of any by now?
Hello brothers,
Well! I like Zak’s idea and same can be applied to people who are willing to buy houses, with some tinkering. If we can create a pool of people who can invest in Home Buying of one of the members and then the process continues for all of them who need to buy a home and don’t want to pay interest, like myself.
I know, practically, there would be many hurdles but still for such a bigger cause, if we could work sincerely and honestly towards the cause, we can slowly but surely reach to that goal.
We can use lottery type of system to decide whose home will be bought first. As the pool gets larger, we can collect money for multiple homes and then pay all of it as a lumpsum.
I have details of the idea in my mind so if anyone interested, drop me an email at ksjarral82@yahoo.com.
Regards,
Muhammad
Assalamualikum. I am a newcomer to Canada. I was a professor in Sri Lanka. I came here through skilled migration with my family. To upgarde my education I need to do a program at Ryerson. I do not want to go for OSAP due to interest issue. Could anybody in this pool guide me if there is any chance of getting an interest free load. May Allah reward you for your help. My email id is jahanrjk@yahoo.com.
Jazakallah
RAhfiya
is their any one who could structure student loans base on, murabaha, wakala, ijara maushufa biththima or bai muajjal…
presently ,we as a Islamic financial institutes are searching and innovating for alternative structures,… please feel free to disturb me on FB (mahdi35@live.com) with ur kind solutions and ideas
God bless all
Assalamualikum. I am an Egyptian student studying Engineering at Cairo University. I am suffering insecurity at home and at the uni. .I want to get out of here and complete my study in the U.S,but i cant afford it as also all colleges that offer full aid have done accepting students for fall 2014 by march. so , now i am obliged to seek a college where i do have to show a state funds that shall cover all expenses as i don’t want to lose the semester.if anyone can help me with that or know where can i get an islamic loan or has any helpful information. Please kindly direct me.
Gazakom alahu khayran
Assalamalaykum warahmatullahi wabarakatuh
I’m a Muslim brother living in Canada and i’m currently in Gr.11 thinking strongly about my future if God wills. I was wondering whether you could give me some info on the Islamic loan with 0% interest which anybody offers. I really want to stay away from loans because i know the consequences.
Jazzakallah Brother/Sister for giving us a voice in this particular topic
wassalamalaykum warahmatullahi wabarakatuh
Hi Abdurahman – To my knowledge such a product does not exist in Canada, sorry.
Assalamalaykum warahmatullahi wabarakatuh
I am a Muslim brother in US, right now I am on my final semester of my Master degree in information system. I am taking only one class for the semester. due to the fact that I am taking only one class, I am not qualify for federal loan. the total amount I need for the class is $4500.
The only option I have is to pay out of pocket or private loan. I will be glad if I can have 0% interest for the loan.
Thanks
Ma sallam