The Injustice of Usury

Since the union between David Cameron and Nick Clegg was formed last year, we have had a series of austerity measures forced upon us, including reforms to the funding of Higher Education in the UK in an attempt to tackle our huge national debt. Despite the angry protests of student bodies, MPs voted in favour of such reforms. With much of the dust now settled from the initial uproar, Aaron Porter has promised a further wave of demonstrations.^[1] My previous articles have called for students to be holistic in their approach to protesting. They should avoid focussing solely on the issue of student debt and instead initiate a debate on our current debt-based economic system, which has not only caused great distress to students and the wider British public, but has also been the source of immense suffering throughout the less-economically developed World. 

The Evolution of Interest

By examining the historical perspectives of usury, it becomes apparent that usury was traditionally viewed as an evil act. Plato regarded it as a way in which the rich could exploit the poor, whilst Aristotle taught that money should only ‘be used in exchange and not increased through interest’.  

The practice of usury has also been condemned by all three of the Abrahamic faiths. During the Council of Nicea in 325 AD the Church was pressurised into compromising on many key principles, however the one issue they remained united on was the sinful nature of usury.^[2] As history progressed, a continual struggle ensued between the merchants who wanted to profit from usury and the Church. Key developments in the ‘legalisation’ of usury include the development of the contractum trinius, which consisted of three contracts, each of which when taken alone bypass the usury provisions, but when taken together give the net result of a usurious transaction.^[3] Later on, Hispanus created the idea of a lender charging the borrower a fee for any late repayments on a usury-free loan as a means of compensation to the lender. This charge later became known as ‘inter esse’^[4] (from the Latin for ‘that which is in between’), and it is from this term that we derive the term ‘interest’. As ‘inter esse’ gained popularity, it was later argued that it should be charged from the outset of a loan, and not just when a late repayment was made. By the 15^th Century, King Henry VIII had set a cap on interest at a rate of 10%; anything greater than this was deemed to be usury. The Church remained silent on the practice, and by the early 20^th century, interest was finally accepted by the Church.^[5]

The prohibitions of usury can also be found in the faiths of Judaism and Islam. 

‘If you advance money to any poor man amongst my people, you are not to act like a money lender; you must not exact usury from him.’^[6]

‘O you who believe, fear God and give up what remains of your claims of usury if you are truly believers. If you do not, then take notice of war from God and His apostle.’^[7]

It is apparent that practicing usury has been despised throughout the ages and great efforts have been made to legalise a process which many believed to be wicked. Philosophers and religious leaders alike saw the harms of charging interest and were outspoken in their condemnation of such a practice. Despite this, we seem to have reached a situation where charging interest is deemed to be perfectly acceptable. Perhaps this is due to a combination of our unawareness of the severity of evil with which it was once perceived, along with the lack of knowledge on the alternatives. 

Is charging Interest really fair?

In order to examine the fairness of charging interest, let us take the example of a person who wishes to start a small business but doesn’t have the capital to do so. He approaches a rich merchant who offers to lend him the capital at a given rate of interest. The lender naturally will have some concern as to whether or not his loan can eventually be repaid in full, due to the uncertainty of whether the business will make a net profit or loss. Therefore the lender will also look to ‘secure’ the loan prior to dispensing it. This is done through the existing assets of the borrower, otherwise known as ‘collateral’, which the lender can take possession of should the borrower default on the loan. 

The above example is a basic transaction which would be familiar to most of us as a perfectly acceptable way of doing business. However, how can it possibly be fair that the rich merchant profits regardless of whether the small business makes a profit or a loss? Surely if the merchant is providing capital to the business, it can only be termed a wholly fair system if the merchant too shared any profits or losses that might result? Furthermore, by setting a requirement for ‘collateral’, only those who have a reasonable level of assets will qualify for such a loan. In other words, the rich have the opportunity to become richer, whilst the poorer individuals who lack assets struggle to demonstrate collateral, are left with fewer opportunities to build on their wealth. From the lender’s perspective, he is essentially more concerned with finding ways of ensuring he does not lose his money, and whilst this is perfectly acceptable, he uses the abundance of his wealth as a means to exploit the borrower by placing conditions on the loan which only work in the lender’s favour.

Perhaps one might argue that in this particular example the merchant is well within his right to charge interest on his loan, as he is giving up the ‘pleasure’ he could have had with his money. There are a couple of issues with this argument. Firstly, how much ‘pleasure’ would a billionaire really sacrifice if he were to lend a few thousand pounds? Would charging interest on this really ‘compensate’ him for the ‘pleasure’ he is losing out on with that money? Secondly, let us look away from the example of the merchant, and examine the situation today where banks lend money to small businesses. My previous article demonstrated how banks operate on a fractional reserve, giving them the ability to create money out of nothing. Therefore, is it really ethical practice for banks to charge interest on money as a compensation for ‘pleasure’ when in reality the lent money doesn’t tangibly exist?

A potentially more robust justification for the charging of interest lies in the argument that the lender is ‘protecting’ the purchasing power of his money. The purchasing power of £100 in the 1970s was far greater than what it would be today as a result of inflation, and based upon this, lenders charge a fee (interest) to protect against this. However, this still doesn’t explain why banks should be allowed to charge such a ‘protection fee’ on money which they have created out of thin air. In addition, suppose one accepts the charging of interest as a protection against inflation, how does this justify banks charging an interest rate which exceeds the expected level of inflation? If banks charge interest as a protection against inflation, perhaps it is worth examining the causes of inflation. 

Inflation of the price of goods will usually occur when there is abundance in the supply of money, e.g. if the government were to print and distribute a huge number of bank notes into circulation, the price of goods would rise accordingly. An extreme example of this can be seen in the history of Germany between the two world wars, where the price of goods often doubled within a matter of a few hours due to hyperinflation. By 1923, the cost of a loaf of bread had risen to 200 billion deutschmarks, and a principle contributory factor to this hyperinflation was the wreckless printing of state money.^[8]

However, the printing press alone cannot be blamed for inflation. My previous article gave a brief insight into the way banks have the ability to create money out of nothing. The graph below, taken from the IMF statistics yearbook in 2000^[9], demonstrates that the proportion of money in circulation which is created by the banks through fractional reserve banking(Proxy M2) is far greater than the proportion of state money, and this proportion seems to rise at an exponential rate. Therefore, the principle cause of the inflation we see today is as a result of money created by the bank. If one considers the interest repayments on this created money, we then begin to get an understanding on the reasons why we have such a huge collective national debt.     

On closer inspection of the above graph, a sharp rise in the proportion of bank money is seen to occur during the 1980s. This reflects some key changes in the UK banking sector, where banks which previously had operated on a reserve ratio 10% were now able to work on a ratio as low as 0.5%. Operating on lower reserves allowed the banks to produce more money for the purpose of lending, and thus, it seeks to explain the huge boom seen in house prices during this period. Whilst homeowners at the time were rejoicing at their gains, we have now reached a situation today where one has no option but to submerge themselves into vast amounts of debt if they want to be a homeowner, making the task of getting onto the property ladder a huge challenge.

Comparing the parallels from the previous generation of to that of the upcoming generation today; the preceding generation were paid to go university and had the opportunity to make huge returns in their acquisition of property on graduating, however today students are not only being asked to pay for their education, but in addition they do not have the ability to get onto the property ladder upon graduation let alone benefit from it. It is no surprise therefore, that Aaron Porter talks about generation inequality. However, what Mr Porter must realise is that it isn’t the previous generation who are to blame at large, but rather the people who tinkered with economic policy primarily for their own benefit. 

The Effects of Leverage

Our current system encourages people to borrow as much as they possibly can. If one can make £20 pounds of profit through borrowing £100, then why not borrow £100,000,000 so that he can make £20,000,000of profit? 

Such a mentality once again illustrates why it is only those with huge amounts of collateral who are capable of profiting from such an interest based system. The small businesses are simply being wiped away by the huge multinational corporations. 

A trip down the local high street might include visiting clothing shops such as Burton, Dorothy Perkins, Topshop and Miss Selfridge. At first glance it all appears to be healthy competition within the clothing retail industry, however on closer examination it becomes apparent that all these chains are actually owned by the same group, Arcadia Group Ltd.

The resulting effect of this is that the small business has no other option but to join hands with the large multinational companies as they simply cannot compete with them. Therefore we have now lost the variety and fairness which once existed in the local high street. In addition, the nature of such an economic system means large firms must always factor in the cost of borrowing to their total income, and so in maximising profit the firm is likely to sacrifice on quality, which eventually affects the consumer. 

A prime example can be found in the building industry, where the trend has become for huge building firms to acquire large amounts of land and erect poor quality housing on them purely for the sake of profit. The shoddy construction of these new homes made from plasterboard make no comparison to the quality of solid brick Victorian and Edwardian houses in the property market. 

Yet another tactic used by the large multinational companies to maximise their profits is to shift the production of their goods to poorer countries, where goods can be produced incredibly cheaply due to the cost of labour and also without the constraints on health and safety of workers. The goods produced can then be sold at high prices in more affluent countries, with the company taking the vast majority of profits. 

A principle failure in our economic system is illustrated here; that the multiple opportunities to create profit only exist to a small minority of the population, frequently at the expense of those who are less fortunate.  

The Effects of Debt on the Less Economically Developed Countries

The current economic crisis and continual talk about the level of our national debt has led to much anger amongst the people of Britain. This anger stems from the fact that the public at large are being asked to take the burden of this debt through austerity measures, such as the significant increases in tuition fees. 

Perhaps this realisation should put us in a place where we can empathise with the people of those countries which are less economically developed and have much higher levels of debt than we do. The effects of debt in those countries however, are far more profound than what we face:

“Relieved of their annual debt repayments, the severely indebted countries could use the funds for investments that in Africa alone would save the lives of about 21 million children by 2000 and provide 90 million girls and women with access to basic education”^[10]

The poorer nations are coerced into debt, as they are told that by taking huge loans and investing wisely, they will be able to repay debts and make profit which they can use in bettering their economy. The reality is far from this idealistic view, and the information provided to us by the UNDP development report shows the profound effect that debt repayment alone has had in poorer countries. 

Perhaps one may argue that it is the failure and corruption of the leaders of these countries to use the loans from the IMF and the World Bank in a shrewd manner, which has lead to spiralling levels of debt in the less economically developed nations. Whilst there may be an element of truth to this, the sole blame cannot be placed on this factor alone. Surely one cannot simply label every single poor country as ‘corrupt’, and even if this were the case, why would the World Bank and IMF supply loans to people who are known for corruption? There is no doubt that large sums of money are required by these nations to bring them to a position where they can be self sustainable, and the resulting interest repayments will always be huge as a result. Before accusing the leaders of poorer countries of corruption, perhaps one should also look at the terms upon which loans are issued to these countries:

‘There is a very broad consensus among African governments that the IMF and World Bank terms are often harsh and unsuitable, generating severely adverse effects on the overall economies of these countries especially with regard to agriculture, manufacture and foreign trade’^[11]

Some of us may wonder why these countries remain in such a poor economic state, despite the efforts of the public in richer countries, ranging from ‘Live Aid’ concerts and annual television appeals. The unfortunate reality is that the money given to these poorer nations in charity primarily goes to servicing their debts. 

‘When charity pop concerts for Africa are held in London or New York, the tens of millions raised are typically enough to pay the continent’s interest bill for a few hours. In 1999, the developing countries excluding the Eastern block were more than $2,030 billion in debt to the developed world’^[12]

‘The development institutions trumpet their aid to the world, to show that something is being done. But what is given with one hand, is taken back many times over with the other. According to the World Bank, in 1999 Angola received $261m in aid but paid $1144m in debt service, Cameroon received $190m in aid but paid $549m in debt service, Kenya received $195m in aid but paid $716m in debt service, and Vietnam received 257m in aid but paid 1410m in debt service’^[13]

The reality of the situation is that the vast majority of revenue which the governments of poorer nations receive goes towards the repayment of its debt. Governments of these countries will look for any means possible to try and gain revenue to repay their debts. Frequently, this is done at the expense of the environment. The table below[14] illustrates the ranking of some countries for their rate of deforestation, and compares this to their ranking for foreign debt during the period from 1990-2005:

COUNTRY	Ranking for Deforestation	Ranking for foreign debt
Brazil	1	1
Indonesia	2	6
Mexico	6	3

In addition to this, the governments of these countries are forced to divert the revenue they make away from areas of need such as health and education, and towards the servicing of foreign loans. When taking all these factors together one must question whether the World Bank and IMF really has the interests of these countries at heart, or whether they are looking at their own interests first. Upon reflection, the words of Plato describing interest as a vehicle for the rich to exploit the poor resonate. 

In conclusion, our current banking method is not wholly fair; it is a system which favours the rich and denies the poor, with the poorest experiencing the worst of its effects. Earlier in the week, Mr Porter promised that he ‘wants to push the arguments beyond tuition fees’ and that ‘protests must be about wider issues’. One hopes that the student community has now realised that the issues we face are far deeper than one merely of tuition fee hikes.

1] Sean Coughlin, BBC News Website, http://www.bbc.co.uk/news/education-12266765, viewed on 26/1/2011

[2] Tarek El-Diwany. The Problem With Interest. Second Edition. Kreatoc Ltd, London 2003. p23. 

[3] J.F Chown. A History of Money 1994. p121

[4] John Noonan. The Scholastic Enquiry into Usury. Harvard University Press 1957. 

[5] Tarek El-Diwany. The Problem With Interest. Second Edition. Kreatoc Ltd, London 2003. p24. 

[6] Exodus 22:25

[7]Quran 2:278

[8] The Nightmare German Inflation. USA Gold. http://www.usagold.com/germannightmare.html. Viewed on 26/11/2011

[9] Tarek El Diwany, Bank Lending and Property Prices, http://www.islamic-finance.com/item105_f.htm. Viewed on 26/1/2011

[10] UNDP Human Development Report 1997, p. 93

[11] Conference of the Institute for African Alternatives, Onimode, B. [ed.], The IMF, the World Bank and African Debt, Zed Books, 1989.

[12] Global Development Finance, 2001

[13] Global Development Finance, 2001

[14] Adapted from: Tarek El-Diwany. Why We Are All In Debt. http://www.youtube.com/watch?v=57CRUjOSuDo&feature=related. Viewed on 26/11/2011

Where Does Debt Come From?

As the Government looks to cut funding to Higher Education Institutions, graduates are instead being asked to pay for the void Messieurs Cameron and Clegg have left them with. With the possibility of student debt rising to £40,000, students have been vociferous in their response against the hikes in tuition fees. The previous article called to students to make a rational response against the proposals and tackle the issue by confronting the core problem of debt. But before addressing this key matter, it is important to understand why we have debt in the first place.

There is a common saying that ‘money makes the world go around’, yet it is astounding how little the general public know about it. We generally see money as a means by which to purchase commodities, and something readily available to us from the ‘hole in the wall’. However what does our money really represent and where does it come from? Only once we are able to answer these questions can we move on to understand why debt is so ubiquitous in our current economic system.

The roots of our modern banking system can be traced back to the 17th century, where a customer would deposit his gold coins (which was state money at the time) to the goldsmith for safe keeping, and in return the customer would receive a paper ‘bearer receipt’ for this. The goldsmiths would charge the customer a fee for keeping the gold in their vaults, and upon presentation of the ‘bearer receipt’, the goldsmith would have to give the customer their gold.^[1]

Rather than going to the bank to obtain their gold deposits for purchasing goods, customers found it more convenient to purchase commodities by handing over the ‘bearer receipt’ to the vendor of the goods so that they could withdraw the deposits if they wished to do so. This system of purchasing became quite popular, and so, more people began depositing their state money with goldsmith, and then trade with the ‘bearer receipt’. As these receipts remained in circulation for a long time, they eventually became money. Thus, a situation emerged where two types of money began to exist; ‘state money’ being that of gold coins, and ‘bank money’ consisting of paper receipts issued by the goldsmiths.^[2]

The goldsmiths realised that with so many people depositing their gold and trading in receipts, they had large amounts of gold sitting idle in their vaults. They decided that it would be in their favour to lend this gold to people of reputable stature at interest, so that they could obtain some return on their deposits. When lending gold to investors at interest, the goldsmith had to be cautious on the amount of gold he was lending. He would have to keep enough gold to meet the requests of depositors who wanted redemption of their receipts. Naturally, there would have been instances where customers would make huge withdrawals in one day, forcing the bank to close its doors to the public. This would then lead to a lack of confidence in the system, causing the infamous ‘bank run’. The key word here is confidence; so long as the public believed that they would get their money on demand, confidence in the system would remain high.

Most of the time, however, withdrawals would generally be relatively small, and so, banks could afford to lend most of the deposits in their possession. The amount of money the bank should keep against the value of receipts it issued is what is known today as the ‘fractional reserve’. Some argued that this ratio should always be 100%, in which the amount of gold in its possession would equal the value of receipts it issued. This meant that the bank would have always been in a position to meet requests for withdrawals. Others however were tempted by the lucrative nature of having a reserve as low as 20%, such that if a bank had £1000 worth of gold, it would keep £200 for honouring withdrawals, thereby allowing it to lend £800 at lucrative interest rates.

It later became apparent to bankers that they didn’t have to physically loan out the gold in their possession, as the receipts they issued equally had the power to purchase goods. Therefore, supposing a banker had £1000 of gold in his vault, if he operated on a reserve of 20%, he could print receipts to the value of £5000, giving £1000 worth of receipts to depositors, with the remaining £4000 being used for loans. This was a crucial development, as it gave the banker the power to ‘manufacture’ money out of nothing, and at little cost. It also illustrates how the bankers had a firm control on the supply of money in circulation.

In 1844, Robert Peel passed the Bank Charter Act which aimed to prevent banks from printing money in excess of their gold reserves. However, the banks tried to side-step this piece of legislation by creating the cheque and account system, which would allow them to retain the power of creating money. Let us assume there are two customers of a bank, A and B, each of whom has a zero account balance. A wishes to buy goods to the value of £100 from B, and so writes him a cheque for that value. The bank credits customer B with £100, whilst customer A is in overdraft to the value of £100. In this way, the bank again has created £100 out of nothing. From this we can see that one group of customers must always be in debt to an amount that equals the supply of bank money. Moreover, if A repays his debt by depositing a cheque of £100 drawn on customer B, then money is essentially destroyed.^[3]

By understanding the evolution of modern banking, we can appreciate the situation today in which the Bank of England prints paper money and the commercial banks create money in the form of electronic credits. Modern day currency is not associated with a commodity such as gold, but in reality is just a piece of paper. Thus, we have gone from a situation in which state currency was in the form of gold and bank currency in the form of paper, to today where the central bank prints money is in the form paper and commercial banks create money in the form of electronic credits. The principle theories, upon which early banks operated however, remain the same. Banks still operate on the fractional reserve system, they lend money and profit from lending through interest, and they have the ability to create money out of nothing. Furthermore, the amount of bank money in circulation must balance with amount of customers in debt. As we have illustrated above that banks create money through debt, repayments of loans are not in the bank’s interest as this destroys money, and a decrease in money supply leads to recession. Hence, debt must always exist.

With such an economic model, the cycle of economic boom and bust cannot be prevented. It is a fact that we will have periods of a false sense of security leading to ‘economic growth’ when money supply is high only for such periods to be followed by periods of recession in which people struggle to repay debts ultimately due to a lack of money supply.

Such an economic model can have serious consequences, not only to the individual, but also to small businesses, larger ones, and even nations. The dangers of such an economic model were highlighted by Thomas Jefferson:

If the American people ever allow the banks to control the issuance of their currency, first by inflation then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied. The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs. I sincerely believe that banking institutions are more dangerous than standing armies.^[4]

Relating this to the situation of British students, it should be apparent that merely calling for the abolishment of planned hikes in tuition fees does not answer their problem of debt. Even if they manage to have the motion repealed, they will still be in debt when they graduate, and will continue to be forced into further debts when they start their climb on the housing ladder. Having students start their adult lives with high levels of debt works in favour of the current economic model, and also helps to understand how debt has become the norm, and not the exception, in our society. Perhaps the problems of our current banking system are best summarised by Robert Hemphill:

We are completely dependant on the (centralized) commercial banks. Someone has to borrow every dollar in circulation, cash or credit. If the banks create ample synthetic money (through the fractional reserve system) we are prosperous; if not we starve. We are absolutely without a permanent money system…It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon”^[5]

When one takes time to reflect upon the nature of our current banking system, it should become quite clear that the issue of debt is something which affects us all. But with students being amongst the most vulnerable in this economic system, the nature of their response against the hikes is quite important. Protesting against the hikes, whether performed peacefully or violently, will not lead to an end in debt. The ultimate solution to putting an end to the huge sums of personal debt we all face is to question our current economic model which essentially functions on the creation of debt. Students should initiate a public debate by putting our current economic model on trial against an alternative paradigm which isn’t based on debt creation. By doing so, they will be taking the first steps to help ease the suffering of many throughout the world who have been crippled by debt.

[1] Tarek El-Diwany. Travelling the Wrong Road Patiently. http://www.islamic-finance.com/item132_f.htm. Viewed on 14th December 2010

[2] The Problem With Interest. Tarek El-Diwany. (London:Kreatoc, 2003) pp36-37

[3] Tarek El Diwany. Why Are We All in Debt (youtube Video). http://www.youtube.com/watch?v=VKPzzXu-F4s&feature=related. Viewed 14th December 2010

[4]Thomas Jefferson. Autobiography, Correspondence, Reports, Messages, Addresses and other Writings. the Writings of Jefferson, vol. 7. 1861, p. 685

[5]Irving Fisher. 100% Money. 1935, p. Foreward

Tutition Fees and Student Debt. Are Students Asking the Right Questions?

Current protests by students have managed to revive student activism reminiscent of the 1960s when ‘student power’ was at its peak. This is of course all thanks to the recent proposals to increase university tuition fees which has ignited the anger of the UK student population, the results of which is clearly evident across various news stations. The National Union of Students (NUS) have issued a number of statements against these proposals; the current President of the NUS, Aaron Porter, accused the Government of betraying a generation saying that the NUS will “resist proposals to increase student fees” based upon the ‘principle of fairness within and between generations.^[1] Even prior to Aaron Porter, the Federation of Student Islamic Societies (FOSIS) represented the Muslim student viewpoint highlighting the negative attitude Muslims have towards usury which in turn will ‘derail accessibility to higher education.’^[2]

Many higher education establishments have, however, welcomed the proposals citing that they will help maintain and enhance their world-class status. Aside from hiring the finest academic staff, universities also need to have funds available to pursue innovative research with the ultimate aim of bettering the society that we live in. 

Although such aims sound noble, a balance must always be maintained, and thus, the anger from the student population is quite understandable. In the current climate, graduates are leaving university in debt only to find themselves confronting a lack of graduate jobs. Combined with the ever increasing material pressures such as scaling the property ladder, how can graduates possibly negotiate the turbulent seas of the property market without a decent income which allows them to save for the dreaded down payment, only to be told that they are going to have to pay even more for their education? Put another way, is it fair for a graduate to start off in debt, and then seek debt only to be told that they are going to be put in even more debt?

The argument against the hike in tuition fees centres around the notion that universities will become a place for the elite few, and for everyone else, they’ll simply have to calculate what the alternatives to higher education are. Ultimately, there may even be a near-complete stagnation in social mobility, as people from poorer backgrounds may be put off from pursuing a higher degree due to the price tag associated with it. Mr Porter, in an article for Channel 4 news^[3] stated that the proposals to increase tuition fees will leave students starting their adult life with debts in excess of forty thousand pounds. Mr Porter’s argument centres around the injustices to the new generation, with cuts in child benefit, poor job prospects for graduates and difficulties in getting on the housing ladder. From his article, one concludes that it appears as if the upcoming generation are being forced to shoulder a significant proportion of the National debt, which is the result of the irresponsible behaviour of the generation preceding them. 

The student population must evaluate its response to the proposals put forward by government very carefully. They’re quite right to be questioning the proposals put forward by the Coalition Government, as the very people who are putting forward these proposals were themselves paid to go to university in the form of grants. A few years later, the grants were withdrawn and loans became available to students. A further few years later a flat rate university fee was introduced and more recently, top-up fees were added to the bill. If the student voice does not identify the crux of the issue, then indeed, things are likely to get worse. By ignoring the core underlying problems associated with an economic system based around debt and money creation, cuts to public spending will continue and the public will be asked to pay.   Universities are renowned as places where students can freely discuss political ideas and develop their own views on the way society should be run. Perhaps the time has now come for university students to seek a solution by highlighting the problems with our current debt-based economic model, and how an alternative economic paradigm might address some of these issues.  

Although the emotive nature of the situation is understandable, leaders of Student Unions need to closely analyse the problems facing them by firstly asking, why has the Government proposed to raise tuition fees and how is this a problem to students? The answer, as the Prime Minister repeatedly states, is the national deficit. This clause has been the justification of a number of cuts in public spending, including cuts to higher education. In return, the Government are asking graduates to plug the hole that they are leaving Higher Education with by paying more fees. 

But why does the deficit even exist in the first place? The response to this lies in the continually increasing national debt that requires the Government to strike a fine balance between paying the debt off whilst keeping enough of a fiscal stimulus (where the government borrows money and spends it) to keep the economy growing. Based upon this very simple principle it is quite clear to see that the central problem is that of debt. The Government has substantial money owing, and some of the ways in which it intends to pay it off is by cutting spending and raising tuition fees, which in turn will put students into deeper amounts of personal debt. Based upon the current state of affairs, it is prudent to ask what students are aiming to achieve by campaigning against the agreed hike in tuition fees. If one supposes that their campaign is successful, will that solve their problem of personal debt (let alone everyone else’s)? Furthermore will such success be a significant actor in reducing the issue of national debt which continues to hound even the poorest of citizens?

When campaigning against the proposed increase to tuition fees, students need to focus their argument on the issue of debt as it seems quite evident that focusing on the key issue may bring about a lasting change as opposed to temporal solutions, and thereby encouraging the rest of the public to begin asking questions about an economic system which is based upon the concept of constantly owing monies. Why is it that we have now reached a point where being in debt is considered to be the norm instead of an exception? Is it right, for example, that a house should have an ever increasing price tag which overburdens graduates and others alike, and that the only way in which one can own a home is through a financial vehicle which not only places the buyer in arrears, but with the lending institution profiting from the buyer’s lack of wealth? 

A large amount of graduate debt is a bleak reality for many students, including the vast majority of Muslim students, and so, perhaps students as the next generation who shall reside and govern this country need to take the lead role in asking us to re-examine our perspective towards debt, that it should be a last resort and never the norm. Students must address this issue amongst themselves before raising the issue with the wider public so as to produce a unified response. An article from the Times’ education supplement in 1997 talks about how “expenditure on leisure is now considered an essential part of being a student and the increased credit available has made this possible.”^[4] Whilst it is perfectly acceptable for students to enjoy their time in education (in a way that upholds the superior Islamic morals and values of course), they must do this within their means and not through credit. For the rest of us, there is no harm in enjoying the pleasures of life, provided of course we are not putting ourselves into debt by doing so. Adopting such an attitude leads to moderation and avoids the dangers of excess. God, with His most divine wisdom commands, 

“O Children of Adam; wear your beautiful apparel at every time and place of prayer: eat and drink: But waste not by excess, for Allah loves not the wasters.”^[5]

Perhaps it is a little ironic for the student population to be clamouring about the ills of a debt-based economic model, when in fact for years students have tolerated being in arrears during their studies. With such an emphasis on having a good time at university, which obviously costs money (let alone the physical and spiritual impact on themselves), many students have to add all those nights out to their education bill alongside their books and stationary. A loan in combination with an interest free overdraft existed to take care of this. However, a decade ago, the student voice remained silent about the so-called need to take out such loans and overdrafts; perhaps the reason for this was that they had the comfort of knowing that there were plenty of jobs available which would help them to pay their overdrafts and loans off in a relatively short space of time – a perception that even then was self-defeating. Accordingly, I strongly assert that one of the reasons for the rise in tuition fees could be the result of silence from student voices on the issues surrounding starting life as a graduate in arrears, and then continuing to be in debt throughout life. Their silence may have been deemed to be tacit approval of such a system, and moreover, the attitude of the student population at large that living in debt is acceptable may help to explain why we have seen a paradigm shift from being paid to going to university to the current situation of paying ‘top-up’ fees. 

Indeed, the issue of debt is something that affects every member of society – we are all coaxed into the system, from house buying and car financing to credit cards and personal loans. One may argue that given the fact that debt has become such an ubiquitous entity – essentially the norm, we need to learn to live with it. Students too, must learn to be part of this system. A response to this viewpoint can be answered with the analogy of our recent swine flu epidemic. Here was a virus which affected a huge number of people, although the majority of adults with robust immune systems were able to withstand the effects of the virus. Children with weaker immune systems however suffered greatly in this epidemic. Our current debt crisis can be likened to an epidemic which is affecting us all, but more so our students and graduates – or children who do not have the robust immune system of the older generations to overcome it. They should be calling for a solution to these problems, and the solution to overcoming debt is not (and can never rationally be) to create even more debt. 

Muslim students have to negotiate all the dilemmas mentioned above alongside maintaining their theological stance that interest is a major sin. It is quite right for Muslim students to air such a concern although perhaps Muslim students too are as guilty as their non-Muslim colleagues in remaining silent for too long. The issue of Muslim students taking student loans isn’t a new phenomenon, indeed, many Muslim students have been forced to take out such loans in previous years. Furthermore, if banks began to offer fraudulent shari’ah compliant student loans (in which interest was hidden under an Islamic guise) to Muslim students in response to hikes in university fees, would that be deemed as an appropriate way in which to address their disapproval in dealing with interest? Perhaps Muslim students need to start promoting an interest-free economic paradigm, and possibly collaborate with other groups on this issue who also understand the dangers of a system bathed in debt and interest. Only by pushing to raise awareness about this dirty bath can we begin to discuss how to cleanse it.

The next article shall discuss the current economic model and how it immorally relies on the mass populace to remain in debt, God willing. Subsequent articles shall, by the will of God, discuss the depravity of such a system as well as tangible and systematic ways in which we can bring about change.

[1] Aaron Porter. Higher tuition fees: a generation betrayed and a case not made. http://www.nus.org.uk/en/News/Aaron-Porters-Blog/Dates/2010/10/Higher-tuition-fees-a-generation-betrayed-and-a-case-not-made/. Viewed on 14^th December 2010

[2] FOSIS Press Release. FOSIS disappointed with Government Proposals for Higher Education Funding. http://fosis.org.uk/media/press-releases/768-fosis-disappointed-with-government-proposals-for-higher-education-funding. Viewed on 14th December 2010

[3] Aaron Porter. Student debt: the £40k question for Lord Browne. http://www.nus.org.uk/en/News/Aaron-Porters-Blog/Dates/2010/10/Student-debt-the-40k-question-for-Lord-Browne/. Viewed on 14^th December 2010

[4] Hannah Baldock. Students Prefer Bar to Rally (Times Higher Education). http://www.timeshighereducation.co.uk/story.asp?storyCode=101184&sectioncode=26. Viewed on 14^th December 2010

[5] Surah al-A’raaf 7:31