KSA عربي
KSA عربي
Global عربي
Education is the basic and necessary need of each individual of the society. Unfortunately, many deserving students are unable to continue their education due to financial constraints.
Islam teaches us to help all those who are less fortunate and who have fewer or no opportunities to avail this goal. There are different financial institutions that are offering various interest-bearing instruments which Muslims cannot avail due to the factor of Usury (Riba).
There are different Quran verses and A hadith that strictly forbid the interest involving factor. Some of them are as follows:
(Surah al-Baqarah, verses 275-281):
"Those who take Riba (usury or interest) will not stand but as stands the one whom the demon has driven crazy by his touch. That is because they have said: “Sale is but like Riba", while Allah has permitted sale, and prohibited Riba. So, whoever receives an advice from his Lord and desists (from indulging in Riba), then what has passed is allowed for him, and his matter is up to Allah. As for the ones who revert back, those are the people of Fire. There they will remain forever. [275]
In a Sahih Muslim:
Narrated by Jabir ”: The Prophet cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: "They are all alike [in guilt]."
In Ibn e Majah:
Narrated by Abu Hurayrah , The Prophet said: "On the night of Ascension, I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they were. He replied that they were people who had received interest."
Therefore, there are some substitutes to interest-bearing instruments that can fulfil the need of someone who is lacking the education facility. The terms and conditions of these substitutes are aligned with the Shariah principles and hence, these instruments are Shariah-Compliant.
When a deserving or needy student is unable to afford educational expenses, some institutions allow them to complete their education first and repay the amount only after graduation.
In this mechanism, the financial institution or fintech pays the lump sum amount directly to the educational institution, enabling the student to enrol and continue their studies. Repayment begins once the student has completed the degree.
Read more about: Is Buy Now Pay Later (BNPL) Shariah-compliant?
In other cases, financial institutions divide the principal amount — along with additional charges such as interest or extra fees — into different instalments.
The student or their sponsor is then required to pay these instalments at pre-agreed intervals. In the conventional system, this usually involves interest being charged on the principal loan.
Read more about: Are Instalments Halal? Exploring Different Scenarios.
Many educational institutions collaborate with fintech companies or banks that provide various loan packages to students.
These financial partners disburse the required lump sum directly to the educational institution, after which students can pursue their education under the repayment model agreed upon — whether pay after graduation or instalment-based.
If the SNPL program is arranged in a manner based on an interest-bearing loan, then it will be deemed Shariah non-compliant.
There are various Shariah impermissible factors involved in the conventional SNPL, the most common among them are as follows:
1-Riba: if the SNPL contract is based on interest, then the factor of Usury Riba exist in it.
Penalty: if the student delay in the due instalment the clause of penalty will impose on him, which is from a Shariah perspective not permissible.
2- Uncertainty: the conventional SNPL program is solely based on uncertainty factor because the student do not about the future payment (may be on time or may be delayed) so the condition is uncertain. And from a Shariah perspective it is also impermissible.
There is different Shariah alternatives to the conventional Study Now Pay Later, but the nearest substitute to the conventional SNPL is the Ijarah-based model, which fulfils the need of the student as well as the financing need of the banks or fintech companies in a Shariah-compliant way. The overall mechanism of this product is as follows:
The deserving student installs the fintech app and agrees to the following terms and conditions:
- The applicant reads all terms and conditions of the SNPL contract.
- The applicant submits the online form.
- Verification of the applicant is carried out.
- Credit assessment is conducted by the SNPL provider.
- Execution of the contract takes place between the student and the SNPL service provider for different subjects at an agreed fee.
- After signing the contract with the student, the fintech service provider approaches the university and requests the courses that the student intends to undertake.
- The university assigns these courses to the SNPL service provider against full payment. Thereafter, the SNPL provider sells these services to the student with a mark-up of for e.g. 2–3 percent.
- The student agrees to purchase these services on an instalment basis and repays the amount to the SNPL provider in pre-agreed instalments.
The following terms and conditions should be taken into consideration while entering this contract:
- The fee should not be paid for subjects already taken.
- First, the student and the SNPL service provider will enter into a master agreement.
- The SNPL service provider will acquire the services from the university through spot payment.
- After acquiring the services, these will then be extended to the student.
- No penalty or late fee clause should be imposed on the student.
- In case of delay in instalments without any genuine reason, a pre-agreed ratio of charity will be collected from the student.
- The overall process will be based on Ijarah Mausoof Fi al-Dhimmah.
- If the overall process take place with the aforementioned terms and conditions then the entire process of the SNPL will be deemed as a Shariah-compliant.
From a student’s repayment perspective, both SNPL and student loans are the same; however, they differ in structure.
In a student loan, the bank pays the amount directly to the student with interest, whereas in SNPL, the fintech platform pays on behalf of the student and recovers the amount in instalments — sometimes with interest and sometimes without.
References:
https://iefpedia.com/arab/wp-content/uploads/2017/02/Meezan-Banks-Guide-to-Islamic-Banking-by-Dr.-Imran-Usmani.pdf
https://www.oraan.com/study-now-pay-later-application
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
