How does the proposed Shari’ah compliant student finance Takaful model work?

The proposed Takaful model is based on the principle of mutual co-operation and guarantee. Whilst a conventional loan contract requires the applicant to pay interest on the amount borrowed, the Takaful contract requires the applicant to make a unilateral promise to make future charitable donations in exchange for the Takaful fund paying for the applicants tuition fees. The rates of repayment and price point of both models are identical.

Section 3 (p6) of our research paper on the ‘Alternative finance consultation report’ provides further details of the proposed Takaful model and can be accessed here.

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