This document provides a schematic of a Sharī‘ah-compliant finance model which could be offered by the Student Loans Company, in addition to their existing conventional student loan scheme.
This model replicates the pricing and terms of the conventional model through a commodity murabaha structure which avoids the use of interest, and has been presented to the Department of Business, Innovation and Skills, who consider it to be viable, and are considering implementing the same, subject to final confirmation.
Al-Qalam are of the view this model is tolerable, though not ideal from a Sharī‘ah perspective, as long as it adheres to AAOIFI guidelines. We would therefore consider this model adequately addresses the concerns of Muslim students about the provision of alternative finance.
A simple commodity murabaha contract is illustrated in the diagram below:
The above commodity murabaha transaction involves the following illustrative steps:
Students would have the choice at the end of the 12 months to either repay the outstanding finance, or rollover the same for a further 12 months, by repeating the above four steps.
The implementation of the commodity transactions would be carried out through commodity brokers acting as an agent for the student. The only practical difference for students would be signing a different bundle of paperwork to that used for the conventional scheme.