Potential Applications of Islamic Student Loan-Backed Securitization for Malaysian Higher Education

Access to higher education has been essential for national development as well as for individual achievement. In Malaysia, expanding access to higher education has been a crucial task. However, Malaysian government has been under financial constraints to adequately support higher education institutions. Malaysia implements mortgage type funding to the student in order for them to continue studies; however, statistics shows that the default rate is higher. Many researchers have tried to address this issue, usually by analyzing the repayment collections to reduce the default rate. This study particularly focuses on the student loan problem, which has not yet been implemented as a securitization process in Malaysia. This work considers the characteristics of Malaysian higher education, suggests a structure for Islamic student loan-backed securitization, and studies the potential of the Islamic student loan-backed securitization in resolving the problem. The main purpose of this study is to create the Islamic student loan-backed securitization framework followed by forecasting the source of income from securitization process for funding higher education students. This work proposed a structure of highly graded and marketable sukuk that complies with global shariah principles that will help the Malaysian government to produce high income nation.