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Sharia Law Student Loans

Volume 583: debated on Tuesday 24 June 2014

Motion made, and Question proposed, That this House do now adjourn.—(Mr Evennett.)

I am pleased to have secured this debate on an issue that has been raised with me by my constituents. A few months ago, I was visited at my constituency office by Fatima Riaz and her two daughters, Saffiyah and Helima, who lobbied me on the issue of loans for Muslim students. I have to admit that I was not up to speed on the issue, but that was quickly cured by the girls, who explained their frustrations with the system. Saffiyah and Helima did not stop there; they organised a letter-writing campaign to show me how many people in Rochdale are affected by the issue.

It was inspiring to see young people engaged with a political issue and lobbying their MP, and the huge pile of letters on my desk is a testament to their success. It is on behalf of these young activists and the many constituents who have written to me that I have secured this debate today.

The Office for National Statistics describes British Muslims as

“a young, tightly clustered, but often disadvantaged community”.

Although that may be true for Rochdale, I would add that it is also a highly ambitious community. Most are ambitious for themselves and are highly entrepreneurial, setting up many new businesses that are helping to move the town forward. Many are also ambitious for their families and care deeply about the education of their children. They are determined that their children should have better lives than them and see education as the route to success in the future.

A university degree is now essential to unlock the door to many professions in this country. Whether that is a good thing or not is open to question—I remain of the view that we should be doing more for young people who do not go to university—but that is the reality of the situation in this country today, so it is no surprise that young Muslim people in my constituency are desperate to go to university and get the qualifications they need to get on in life. They want to improve their own employment prospects and to continue a great tradition of Muslim scholarship at the same time.

Members can imagine their dismay when they find that the student loans on offer to help with astronomical university fees are not compatible with their religious beliefs. Essentially, they are being asked to choose between the future they want for themselves and their own religious convictions. That is not a choice we should be asking anyone to make. It is an unacceptable situation. I understand that not all Muslims feel that way and that there is a degree of theological argument about the issue. I would not dream of wading into that particular debate, but I will briefly set out the issue as I see it, for the benefit of the House.

In Islamic teaching and in some other religions, there are rules about the charging and receiving of interest. Under the old student finance arrangements, that was not much of an issue because interest rates on student loans were tied to the retail prices index, so they were not considered commercial loans. The vast majority of Muslim students felt that as long as the interest was in line with inflation the loans were compatible with their beliefs.

The issue came to a head with this Government’s decision to overhaul the student loans system when they came into office. It is fair to say that that decision was not their most popular one among certain coalition Members, and it was certainly not popular with the public. The new loans have a real interest rate that operates on a sliding scale, depending on the graduate’s income once they have left university. According to the National Union of Students, many Muslim students feel that the new arrangements are not compatible with Islamic teaching because of the real interest rate.

That means that many Muslim students are left to rely on their parents to fund their education. That was sometimes possible under the old system, which had lower fees, because parents could save up the money for years in advance of their children going to university. The fees were about £3,000 per year, so it was not easy, but it was possible. Under the new system, with fees of up to £9,000, that option is now out of reach for the vast majority of Muslim families.

In fact, Muslim students who are unable to get loans are actively discouraged from going to the best universities, because they have the highest fees. That forces agonising choices on parents, who have to explain to their children that they cannot afford to send them to the best universities, even if they get the required grades. That has created an unfair playing field in higher education and discriminates against Muslim students, especially those from poor families. Of course, the Government know that, because it was identified as an issue in their equality impact assessment when they announced the new student loans system in 2010. They have now had at least four years to sort it out.

Forgive me for intervening, Mr Speaker. I am just anxious to learn whether there are not Muslim banks or sharia law banks to cater for Muslims who cannot pay what contradicts their religious beliefs, because I thought that there were such banks.

The hon. Gentleman makes a good point, which I will come on to. The United Kingdom is very good on sharia-compliant financial services, but because the system is Government-run, the process for paying tuition fees for going to university needs to be matched by a sharia-compliant system. The same issue applies to advanced learner loans and business start-up loans, which are often overlooked in debate about this matter.

Thanks to some great lobbying work by the National Union of Students, the Federation of Student Islamic Societies and others, the Government agreed to take action. In a debate on the then Education Bill in another place, Baroness Verma said the Government would “seriously consider” changes and would seek to

“address the doubts that members of some faiths might have”.—[Official Report, House of Lords, 1 November 2011; Vol. 731, c. 1204.]

That was in 2011; we are now in 2014, and there is still nothing on the statute book to address this inequality. I find that staggering, given that the Government—to their credit—have taken action on the similar issue of Islamic mortgages and on Government bonds. There is now a thriving Islamic finance sector in the UK, with 22 banks offering services that comply with sharia law, so why the delay with student loans?

As far back as October 2012, the Minister for Universities and Science—he is now in his place—said that the Government had

“identified an alternative Shariah compliant system”.—[Official Report, 24 October 2012; Vol. 551, c. 934W.]

The system works using a murabaha scheme, which is interest-free but still costs the students the same amount overall. That point is important. Muslim students are not seeking to pay less than other students. They are simply asking for a loan system that fits their religious views. It is also important to say that any new scheme should be open to all students, not just to Muslims.

I understand that the Government are consulting widely on this matter, and I am pleased that they are doing so, but I question why it has taken so long to start the consultation, given that the issue was identified back in 2010. In the Government’s own equality assessment published in 2012, they said that changes would require primary legislation, but we have just seen the Government’s final Queen’s Speech of this Parliament and I could not see anything about this issue or any other Bill in which it could be addressed. I hope that the Minister will explain why that was the case and confirm that that means that there will be no real action on the issue in this Parliament. If that is the case, it is extremely disappointing. My constituents will feel that the Government simply do not see their education as a priority. It is difficult to escape the conclusion that they are right.

Getting more British Muslims into higher education in this country should be a priority for the Government. There are 2.7 million Muslims in England and Wales, but according to the Office for National Statistics, a third of those of working age have no formal qualifications. British Muslims are also the least likely of any religious group to have a degree and the most likely to be unemployed.

This inequality has wider social and economic consequences. It leads to the under-representation of British Muslims in public life and the professions. That can be seen clearly in Parliament. Out of 650 Members, only eight are Muslim. If Muslims were represented proportionately, the number would be closer to 30. That means that there are fewer people to speak up for Muslims in Parliament.

The Prime Minister has recently decided to talk about “British values” in schools. I agree with him that that is important but I say to the Minister that I think that “British values” include the right to a good education for all, regardless of religious views. Given that his Government have failed to deliver that, I suggest that the Government be more careful when lecturing British Muslims about “British values”.

Under-representation of British Muslims is not confined to politics but stretches across society to the media, academia and the law. That fuels segregation and ignorance, which hold us back as a country. There is also an economic dimension. By denying Muslim students equal access to higher education and business loans, we are wasting the potential of thousands of our citizens.

These young people could go on to found successful businesses, cure diseases or go into teaching and inspire new generations of students, but they are being deterred by the current policies of this Government. That is a tragedy for them, but it is also a tragedy for the country. The best resource we have is our people and we must not let their potential go to waste.

I am sure that the Minister agrees, but I make this point to impress upon him the urgency of rapid action on the issue. It now appears that we will have to wait until 2016 for any new system to be implemented. That means that at least five cohorts of students will have been let down by the system. That is an unacceptable waste of young talent.

I want to finish by reminding the House of the words of the Prime Minister at the World Islamic Economic Forum in October last year. He said:

“Never again should a Muslim in Britain feel unable to go to university because they cannot get a Student Loan—simply because of their religion”.

I could not agree more with the Prime Minister, but he should remember that it was his Government who created this situation. Unless he acts quickly, it will be his Government who failed to resolve it.

May I begin by apologising to the hon. Member for Rochdale (Simon Danczuk) and to you, Mr Speaker, for not being able to be present for the start of the debate? I have just returned from a visit to the US and my flight was delayed, but I apologise to the hon. Gentleman and to the House. I have had a report of the remarks he made in the first minutes of his speech and I have, of course, listened very carefully to what he said in the latter part of it.

Let me begin by showing the hon. Gentleman that we are committed to ensuring that young people can access all the opportunities available to them. Our higher education reforms introduced in 2012, following Lord Browne’s independent review, are, we believe, contributing to maintaining the quality of education and bringing more money into universities by contributing more to the costs of education. That is because graduates gain a range of benefits from a university education, most notably the higher salaries they earn.

Lord Browne’s report also highlighted the importance of ensuring that students get a fair deal. Given the current fiscal environment, the alternatives to asking graduates to contribute more are a reduction in student numbers or a cut in per-student funding, which would undermine the sustainability of our HE sector. We agreed with his recommendations, and, of course, no first-time undergraduate student has to pay upfront fees. Students from lower-income households continue to receive support through the student loans and grant system.

I very much agree with the points the hon. Gentleman made about the Muslim students he is familiar with from his own constituency and more widely. He referred to their aspiration to go to university, which we absolutely promote, and to their entrepreneurial instincts, which are admirable. It would be a tragedy if any student, particularly a Muslim student, were put off going to university by concerns about so-called interest rates.

Perhaps I can report to the hon. Gentleman and to the House the evidence we have from the longitudinal study of young people in England and the youth cohort study. It suggests that many Muslim students take up Government student loans. The findings so far are that 74% of Muslim young people who attended higher education at 18 took out a student loan, compared with 80% of Christian students, 81% of Hindu students, 73% of Sikh students and 80% of students with no stated religion.

It is a small study and we will continue to monitor this very closely, but at the moment we do not believe that there is evidence of a disproportionate exclusion of Muslim students from university because of anxieties about the fees and loan system. Nevertheless, there is an understandable and legitimate concern about this whole issue, and we have been trying, wherever possible, to design loan schemes that are consistent with the principles of Islamic finance. We have already announced the creation of a type of start-up loan that is consistent with those principles while being equitable for other participants in the scheme. That is why we are now examining a sharia-compliant alternative to conventional student loans.

We are clear that we want a single student loan system that can meet the needs of the majority of students where possible. We are proposing a Takaful, which would be administered by the Student Loans Company and run alongside the conventional system. Collections would be made in the same way as conventional loans, and application would be open to anyone and done through the same channels as conventional loans.

Any alternative finance product would not result in a student being in any way disadvantaged or advantaged over a student who took out a more conventional student loan. Both the size of the finance and the repayment amounts would be equivalent under the two systems, but the Takaful model does have a different underlying principle, which is one of communal interest and transparent sharing of benefit and obligation, with the repayments of students participating in the fund being used to provide finance to future students who elect to join the fund. This ensures that all members of the fund benefit equally from it.

Let me take the hon. Gentleman and the House in a little more detail through how the proposed Takaful would work. Students participating in the fund would not be borrowing money and paying it back with interest to a third party, which would not be compliant with sharia law. Instead, the Takaful fund will be established with an initial amount of money that can be donated to the fund from government or on the basis of Qard Hasan—interest-free loan—and based on a concept of mutual participation and guarantee.

Students will obtain finance from the fund by applying in a similar manner as for a conventional loan. The contract will be based on a unilateral promise guaranteeing that they will pay a Takaful contribution, which is perceived as a charitable contribution from a sharia perspective for the benefit of members of the fund. Moneys will be released once the contract is signed. Repayment will be made to the fund once the student is in employment and earning above the repayment threshold, which will be set at the same level as for traditional student loans.

The contribution that the student repays to the fund would help to ensure that future students benefit from the fund, allowing them to complete their studies as the original student did. The mutual basis of that structure, with members of the fund helping each other attend higher education, makes that model acceptable under sharia law: the lending-borrowing relationship does not exist in that model. The student finance fund—the Takaful fund—is managed by a fund manager under the Islamic finance principle of Wakala, or agency, for a specified fee. The fund is completely segregated from traditional student loans to ensure full compliance with sharia in the whole cycle of the fund.

It has taken us time to develop and consult on that model, but it was proposed and developed by experts in Islamic finance, and the concept has been provisionally approved by the Sharia Supervisory Committee of the Islamic Bank of Britain. Were that alternative finance product to be made available, the Sharia Supervisory Committee would oversee the operation of the fund and ensure that it was operating in a sharia-compliant manner, with an annual report on the operation of the fund.

The hon. Gentleman did not raise this point, but because of concerns coming from a different perspective I make it clear that this measure does not mean we are introducing sharia law in the UK. Sharia principles are the code of personal religious law governing the conduct of Muslims. They can extend into all aspects of people’s lives, but provided that an activity prescribed by sharia principles does not contravene the law of England and Wales, there is nothing that prevents people from living by them.

I understand the hon. Gentleman’s frustration about the timetable, so I will briefly take him through that. Any alternative finance product would not be available before 2016 at the earliest. We will require legislation to allow the Secretary of State to issue an alternative finance product, because currently only loans and grants can be issued, and HMRC may also need to update its regulations. I am afraid it has not been possible in the time available to bring before the House a higher education finance Bill that would include such provisions, and there is more work to be done.

Full feasibility is required before we can implement any alternative finance product. That will include working with HMRC to determine any changes to its systems and forms, and engagement with employers over collections as well as implementation by the Student Loans Company. There looks to be minimal additional cost to the taxpayer, but that will require more detailed study.

The Government accept the importance of the concerns raised by the hon. Gentleman and representatives of the Muslim community, and we are determined to ensure that the student finance system is accessible to as many people as possible. A consultation that closed earlier this month provided the UK population as a whole with an opportunity to voice their opinions. Findings will be published later this year, but early indications suggest that the majority of respondents are in favour of an alternative finance product, and that as long as we provide evidence that it is sharia compliant they would find Takaful acceptable. It also highlighted concerns from potential students about having to choose between their religious beliefs and their education.

In conclusion, I assure the hon. Gentleman and the House that we understand the importance of ensuring a form of student finance that is consistent with sharia law, and we do not believe that our conventional model is one of commercial loans—that may be why the scheme already has high levels of participation by Muslim students.

Is my understanding correct that, until 2016, no system whatever will be in place—Government-sponsored or otherwise—to help students who wish to go to university but cannot afford it without parental support?

As I said a moment ago, it will not be possible, sadly, to legislate in the time available, but I hope that my hon. Friend will take some comfort from the evidence showing that a substantial proportion of Muslim students are taking up our conventional fees and loans, and I believe they are doing so because our fees and loans are not actually commercial loans in any recognised sense of the term. There is an important issue here, however, and we understand it and have consulted on it. I very much hope that it will be possible to introduce this as a matter of urgency in the new Parliament, and I am sure that continued pressure from the hon. Member for Rochdale—and our sense of obligation to the Islamic community—will mean that, after the latest round of consultation, we will be able to bring it to a successful conclusion. I conclude the debate on that basis.

Question put and agreed to.

House adjourned.