Some of the UK’s leading universities have been caught advertising “interest-free” sharia loans to Muslim students.
The scheme, branded Alternative Student Finance, is structured around the Islamic principle of takaful – a model of collective mutual support – whereby graduates make “contributions” equivalent to what they would have paid in interest under the conventional system.
Those contributions, however, will not flow into the Treasury. Instead, the funds are ring-fenced exclusively to support future students enrolling in the same Sharia-compliant programme.
The Government has described the initiative as one of the first state-backed arrangements of its kind globally, but opponents have accused Labour of fostering division.
Taxpayers remain exposed if the loans go unpaid, as official projections suggest nearly half of all student debt will never be fully recovered.
Under the conventional loan system, interest accumulates on top of the initial sum borrowed, with repayments directed back into the Government’s general spending pot.
The Alternative Student Finance model dispenses with interest entirely, replacing it with a matching “contribution” that graduates pay alongside their principal repayment.
Rather than bolstering Treasury revenues, these contributions are channelled into a dedicated fund reserved solely for subsequent participants in the programme.
The Government insists that students on either plan will repay identical amounts on the same schedule, meaning no one receives a financial advantage.
The scheme is also nominally open to applicants of any faith, not exclusively Muslims.
The Islamic Finance Supervisory Board will certify the product, which was developed with more than £365,000 of public money paid to the Islamic Finance Council UK, according to The Telegraph.
Several prominent institutions have already begun promoting the finance option, the outlet reports.
The University of Bristol has described it as an “interest-free UK Government loan” that is “compatible with Islamic finance principles,” while the University of Leeds has similarly indicated the finance could be accessible from the 2026-27 academic year.
Newcastle University has characterised the product as “non-interest bearing” and “sharia-compliant finance,” and De Montfort University has gone further, stating it is “certified as sharia-compliant” for those “who can’t take out interest-bearing loans for religious reasons.”
In contrast, Cambridge University directs its students to guidance from the UK Fatwa Council, which has endorsed mainstream student finance as permissible.
Suella Braverman, Reform’s education spokesman, 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.
“Sharia loans are, by their very definition, exclusionary and for the benefit solely of Muslim students, thus creating parallel institutions that are incompatible with the British way of life.
“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 Department for Education has firmly rejected accusations of preferential treatment.
A spokesman said it would be “completely false to assert that Alternative Student Finance arrangements would give favourable treatment to Muslim students.”
The spokesman added: “All graduates will be repaying their loans in full regardless of which system they use, including an equivalent alternative to interest.”
They maintained that the programme “unlocks higher education for thousands more students and means that nobody is excluded from a university education because of their faith.”