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.
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