British universities advertise ‘interest-free’ sharia loans to Muslim students

British universities are advertising “interest-free” sharia student loans to Muslim students. The loans could be available as soon as next year, and repayments will be used to finance other Muslim students, and those taking up the Alternative Student Finance scheme, rather than going to the Treasury. Taxpayers will still have to foot the bill if the loans are not repaid in full, which official forecasts estimate will happen to almost half of student debt.

Islamic law bans the paying or receiving of interest, and the new system is designed to enable more Muslim students to attend university, but is open to all. The system claims to match the repayment amount of sharia loans with those of students on a traditional loan. It is based on the Islamic finance principle of Takaful which means that instead of interest on top of their principal students pay an equivalent “contribution” which is then “ring-fenced” to help future students on the sharia-compliant loans programme.

Opponents warned that it would create a “two-tier system” that risks being divisive. Suella Braverman, the Reform spokesman for education, said: “This outrageous anti-British scheme creates a two-tier education system and divided society. “The scheme from Labour proves they are addicted to double standards in all aspects of British life.” She said that offering sharia-compliant loans risked “creating parallel institutions that are incompatible with the British way of life”.

She added: “The whole idea is made even more farcical by the fact that the Treasury, and therefore British taxpayers, will have to foot the bill if they fail to pay.” The Government paid Islamic Finance Council UK more than £365,000 of public money to devise the scheme, and boasted that it was one of the first such systems in the world. While the interest from regular student loans goes back into the Government’s general pot for running the country, repayments from the sharia-compliant scheme would only be spent on others joining the “Alternative Student Finance” programme, which is predominantly aimed at Muslim students.

The Department for Education (DfE) has not given a date for the introduction of the loans, but they will be rolled out as part of a package of changes to student finance that start this year. The Telegraph can reveal that a number of Britain’s leading universities have begun advertising them. The University of Bristol said the “interest-free UK Government loan” would be “compatible with Islamic finance principles”. Along with the University of Leeds, it advises students that the loans could be available in the 2026-27 academic year.

University College London and City St George’s are telling applicants that the loans “would not be interest-based”. Newcastle University described the loans as “non-interest bearing” and “sharia-compliant finance”. De Montfort said the product was “certified as sharia-compliant” for students “who can’t take out interest-bearing loans for religious reasons”. Some Islamic scholars argue that it is permissible for Muslims to use the existing student finance system, and Cambridge advises its students that mainstream student loans are “backed by the UK Fatwa Council”.

But a 2021 Muslim Census survey of nearly 39,000 British Muslims found that 80 per cent of students “feel conflicted” by regular loans, with some 71 per cent claiming the existing system discriminates against Muslims. In June 2025, the Government said the initiative “doesn’t include interest”, and described it as one of the first state-backed sharia loan schemes in the world, noting that ethical concerns about interest payments were “most common among some Muslims”.

Any student can apply for the new finance, and they will repay the same amount as everyone else, on the same dates, but with the understanding that the “contributions” would be ringfenced for those joining the sharia programme. The new loans will be based on the Islamic concept of “takaful” – a form of group-based mutual support – and the Islamic Finance Supervisory Board will certify the product. A DfE spokesman said it would be “completely false to assert that Alternative Student Finance arrangements would give favourable treatment to Muslim students”.

“All graduates will be repaying their loans in full regardless of which system they use, including an equivalent alternative to interest,” he added. “This approach to student finance unlocks higher education for thousands more students and means that nobody is excluded from a university education because of their faith. “Student loans do not function like other loans, the burden on borrowers is managed, and the system is already heavily subsidised by government.”