The Higher Education Loans Board (Helb) has announced plans to introduce a Sharia-compliant product as a growing number of Muslim students join local universities and colleges.
The alternative product will be offered alongside its traditional low-cost loans.
Helb chief executive officer Charles Ringera said the proposal is contained in a Bill that is currently with the Attorney-General Githu Muigai for review.
“The proposal is to give the board the leeway to construct a sharia-compliant product by working with Islamic finance expert,” said Mr Ringera adding that the board is also looking at a series of Islamic fundraising effort.
At the moment, Helb provides conventional loans to students at four per cent interest rate with repayments being collected automatically from payroll or direct transfers one year after the learner has finished the course.
Details of the proposed product are still sketchy but sources said it will most likely assume the structure of Takaful finance.
Sharia outlaws interest (riba) but students who benefit from the Takaful product end up repaying the same amount as colleagues who take interest-based loans.
To roll out such a product, Helb will have to come up with special loan forms that require beneficiaries to commit that they will repay a Takaful contribution for the benefit of future students once they finish education.
Such a contribution is regarded as charitable and set at a level equal to the cumulative amount of principal and interest paid by conventional loan students.
Mr Ringera announced that Helb will next month launch a literacy programme targeting new students to advise them on proper use of the loans noting that most misuse the money.
“Helb is the first financial institution that the student interacts with... Many of the applicants will have a whole Sh45, 000 in their pocket for the first time – they need to be taught how to use the money,” Mr Ringera told the Business Daily.
He said the move is meant to socialise the student on the need to start paying the loan even as an early as they can including when they are in college.
Two per cent of beneficiaries are repaying loans as they study.