British universities have begun promoting government-backed “interest-free” student loans scheme

Six UK universities have begun advertising “interest-free” student loans designed to comply with Islamic law. The government-backed scheme is drawing sharp criticism over fears it could create a “two-tier” system, the Telegraph has reported.

The planned scheme, known as Alternative Student Finance, is set to comply with sharia law, which prohibits the payment or receipt of interest. Based on the Islamic finance principle of Takaful, it would require students to pay an equivalent “contribution” instead of interest on top of their principal, with the funds ring-fenced to finance future participants.

Takaful, an Islamic system of mutual financial assistance and risk-sharing, is widely used in Muslim-majority countries, primarily in insurance rather than higher education financing.

The Telegraph noted on Tuesday that the British authorities paid Islamic Finance Council UK more than £365,000 ($486,000) of public…