Islamic Loan
There are a good number of Muslims now living in the UK, many of whom are second and third generation. Until recently Muslims living in the UK got help from their local community when they needed extra finances because the banking system operated in a fashion that was not conducive to Sharia law.
Sharia law forbids Muslims from engaging in financial transactions that involve the receiving and paying of interest as this is regarded as usury or riba, and is forbidden in the Qur’an and in Sharia law. In Islam it is considered unethical to make a profit out of lending someone some money. Where interest is involved this has to be based on the provision of extra goods or services.
Over the last few years the banking system in the UK has brought in practices that are compliant with Sharia law. These services are for Muslims and also any non-Muslims who might want to participate in a more ethical banking system. If you want to get a mortgage under this system then terms are agreed at the outset, usually for a period of twenty five years. The bank will buy the property and it will be leased to the person who requested the mortgage, they will make monthly payments, part of which is for rent and part as payment for the property. At the end of the twenty five year period the person becomes the sole owner of the property.
Although many banks in the UK now make some adjustments to comply with Sharia law, there are still areas of concern for Muslims, not least of these being the area of student loans. Councils say that the extra money students have to pay on their loan is only to cover the cost of inflation, there is no profit made on student loans. Some Sharia scholars will allow this as admissible while others say that because the student has to pay extra money back, this is not in accordance with Sharia law. What is problematic about the student loan system is that education is regarded as intangible and Sharia law really requires that there be something tangible involved in the process.
One Islamic bank in the UK has found a way round the student loan system that is more in keeping with the principles of Sharia law. The bank, in accordance with Sharia law, works with an advisory council composed of Sharia experts. If a student needs £10,000 for tuition fees then the bank will buy some commodity for £10,000 and then add a markup of £2000. The student sells the commodity, copper for example for £10000 and then pays the bank back £12000 in installments when they graduate. Because the bank uses this trading process, a form of venture capitalism, it is compliant with Sharia law, although some scholars would argue that it may be in keeping with the principles of Sharia law but not with its spirit. In spite of some weaknesses, the UK is the only non-Islamic country that makes adjustments in the system to accommodate Muslim beliefs.
