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Islamic Finance

Assalamu alaikum Sheikh Sajid. I'm an 18 year old brother that is set to start University Insha Allah. I won't be applying for a student loan for tuition fees. However in order to receive grants and bursaries from the university, which do not need to be repaid back and have no interest, I need to be means checked e.g the University needs to see my household income to see if I am eligible for grants and bursaries. To be means checked I need to apply for a maintenance loan with £0.00. I am not taking any loan from the government and am only applying for a maintenance loan in order to be mean checked. The maintenance loan application at £0 may mention interest payment in the contract, I'm not sure. Is it halal for me to apply for a maintenance loan with £0 in order to be means checked and qualified for bursaries and grants?

Summary

A detailed Islamic ruling on whether applying for a £0 maintenance loan purely for means-testing purposes is permissible, clarifying when such an application does or does not constitute entering a ribā-based contract.

Answer

باسم الله، والحمد لله والصلاة والسلام على رسول الله


Wa 'alaykum salam.


May Allah reward you for your question.


In summary, if the application is merely an administrative tool, and it would be if:


  1. No money is borrowed
  2. No debt is created
  3. No legal obligation to repay with interest exists
  4. The application is only used as a means-testing gateway
  5. And you are not considered a borrower from the perspective of Islamic Law.


Then this is permissible, because:


  1. Ribā is not actually entered into
  2. No sinful contract is concluded
  3. The intent and reality are both free of ribā


However, if the application legally binds you to a loan contract, and this would be the case if:


  1. The agreement includes binding clauses referring to interest
  2. You are legally classed as having entered a loan agreement
  3. Interest applies automatically if the amount changes later
  4. You are signing something that would become ribā-based if activated;


Then this is not permissible, even if the amount is £0, because:


  1. You have consented to a ribā framework
  2. The prohibition applies to the contract itself, not the amount


And Allah knows best.