Sharia Law Student Loans
Debate between Bob Stewart and Lord Willetts
The Minister for Universities and Science (Mr David Willetts)
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.
Bob Stewart
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?
Mr Willetts
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.