Banking for the Rich

IF COLLEGE EDUCATION IS a ticket to prosperity, then that ticket is becoming increasingly expensive for many Americans. The cost of attending a four-year private university in the United States is now more than $30,000 per year. For public schools, tuition is approaching $12,000 per year. The cost of education will continue to outpace inflation for the foreseeable future, increasing almost 5 percent annually.

The vast majority of American families cannot afford these costs, particularly if multiple children attend college at the same time. The reason access to higher education remains available to a large segment of the population is the $ 134 billion of financial aid disbursed each year. Without this system of aid, access to a college education would be restricted to the most elite and wealthy of families. The problem for Muslims is that a significant portion of the aid is wrapped up in interest bearing loans, which most Muslim scholars consider prohibited under Shari’a (Islamic law). So the question is, what is a college aged Muslim student to do?

There are few alternatives. It is unfortunate, but not surprising, that education loans are not a major priority for the burgeoning multibillion-dollar Islamic Finance industry. Islamic Banks, for the most part, are concerned with servicing clients who invest in mutual funds, real estate and other things in which mostly wealthy people invest. Ordinary families struggling to pay for higher education need not apply.

So when it comes to a Muslim student in America striving to get a good education without violating Islamic law, his or her options include a generous rich uncle, a highly competitive merit-based scholarship or the nearby community college. None of these options provide consistent access to mainstream colleges or universities for the majority of Muslim students who work hard enough to earn admission. So goes the American dream.

In the absence of viable alternatives, it is important for Islamic scholars who prohibit the taking of interest bearing loans to consider the socio-economic ramifications of this position. If all Muslim families in America adhered to it, then only a small fraction of them would be able to send their children to four-year colleges or universities. The Muslim rich will have access to the best institutions, while the rest will be forced to “choose” occupations that do not require developed skill sets. In a knowledge-based economy, disparity in wealth will increase as fewer people become more educated, and the possibility of upward social mobility will be severely curtailed. In other words, the Muslim community in America will begin to resemble the Muslim community in Pakistan or Egypt, where education and opportunity are reserved for the elite, and everyone else is asked to wash their dishes and chauffeur their cars. The rich keep getting richer.

Of course this scenario is not likely to be realized because many Muslim students take interest bearing loans for educational purposes. These same students are also MSA presidents and future Islamic studies professors. They donate to their local mosques and buy Islamic mortgages. Some of them may even become religious scholars only to determine that the loan they took 10 years before – that facilitated their opportunity to pursue the study of Shari’a – was actually forbidden by Shari’a. Irony has a way of telling you that something does not make sense.

The problem of education financing highlights a central shortcoming of Islamic Finance today. The development of Shari’a compliant financial instruments is driven by the wealthiest segments of our community. Their focus is not on the average person’s need for money, but rather on the desire of a few to make more money. Islamic Banks speak to that focus by investing in stocks, real estate and other money-making assets and put less effort into developing products, like education financing, that serve the average person. As a result, the ethical imperatives of social justice, economic empowerment and the distribution of wealth inherent within Islamic Finance remain underdeveloped and almost entirely ignored.

Islamic Banks will not be motivated to offer education loans unless one of two things happen: There is a clear potential for profit in the student loan market or the religious scholars who sign off on Islamic Banks’ mortgage and stock products insist that the banks they do business with also carry products for working class Muslims such, as student loans. Any change in the Islamic Banking industry will require visionary leadership from the scholars who determine what does and does not comply with sharia. Part of that vision must include pushing Islamic Finance into servicing segments of the community that think more about tuition and less about stocks.

If the $750 billion Islamic Finance industry worked as hard to develop interest-free education financing as it has to develop interest-free home buying, maybe the millions of Muslim students seeking a degree would not have to equate aspirations for higher education with sin.