UK government responds to public consultation on the introduction of Shariah compliant financial product for student higher education financing UK: The UK government last week issued a response to the 10-week public consultation launched in April, regarding a potential Shariah compliant alternative finance product to be offered alongside traditional student loans for Higher Education in England. Following the consultation, which received 19,886 formal responses from both individuals and organizations including CityUK, Islamic Finance Council UK and Al-Furqan Islamic Center in Glasgow, the UK government has concluded that “there is demand for an alternative finance product, although the extent is unquantifiable”. The results of the consultation suggested that over three quarters of the respondents were sent in a personal capacity, with 83% of respondents stating the changes in the cost of tuition fees and student loans (which can now reach up to GBP9,000 (US$14,690.1) per year) have had a large affect on students with religious objections to the charging of interest. Of the respondents, 94% believed that there would be demand among students and potential students for an alternative finance product which was Shariah compliant; 81% felt that the proposed alternative finance product would be acceptable to students and potential students, who currently hold concerns regarding the interest rates on traditional loans. The consultation revealed concern regarding the true Shariah compliance of the proposed model and how the system would work; the necessity of AAOIFI compliance and the presence of a Shariah advisory committee that was independent of government, free from financial incentives, transparent and open, with no conflicts of interest was clear. The results of the consultation showed some limitations. There was evidence of campaigning activity resulting in a large number of responses with identical or similar wording and misunderstanding of the product, particularly the interest-free component and this has been taken under advisement within the government response: “The government recognizes that with the introduction of an alternative finance product comprehensive information and guidance would be need to be put in place to raise awareness and articulate how this was Shariah compliant and which Shariah board and scholars had approved it.” Despite the concerns voiced within the consultation, the exercise has provided the UK government with a positive response to the introduction of an alternative finance product, as prior to the consultation launch there had been no direct evidence to help inform policy making. The potential alternative product, which is based on the Takaful model, has been developed by the UK government with the aid of Shariah compliance finance experts and has received preliminary approval from the Shariah advisory committee of the UK’s only retail Islamic bank, Islamic Bank of Britain. Whilst the consultation has provided the necessary proof of demand for an alternative financing product for students, there are still many more hurdles to overcome before the model is made reality. The UK government has identified the need for a full feasibility study to determine whether the current student financing and taxation infrastructure would be capable of servicing the Shariah compliant model. New primary legislation would be required for the offering of the alternative model, meaning that it is unlikely that any alternative finance product will be available before the academic year 2016/17.
Posted on: Tue, 09 Sep 2014 08:00:24 +0000
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