A Sharia law compliant alternative to the conventional student loan could be available from 2016, the universities minister announced today.

David Willetts said a cooperative system called a takaful was being examined as a way of enabling Muslim students to fund their studies without contravening their beliefs.

The money allocated would be of the same size and the repayment amounts equivalent, but the fund would function on a principle of communal interest and transparent sharing of benefit.

To that end, repayments would go back into the fund and be used to finance future students who select to join it, allowing members to benefit equally.

Rather than borrowing money and paying it back with interest to a third party which is prohibited by Sharia law, he explained, students would sign a contract promising to pay the tackaful, perceived as a charitable donation.

He said: "It would be a tragedy if any student, particularly a Muslim student because of concerns about so-called interest rates, were put off from going to university.

"We are now indeed examining a Sharia compliant alternative to the conventional student loan."

The issue was raised in a short debate by Rochdale MP Simon Danczuk, who said a Sharia version of the system was needed to end discrimination against potential Muslim students.

He said he was disappointed not to have seen any legislation to deal with the issue in the Queen's Speech, because it was the last legislative programme for the current administration.

Mr Danczuk said reforms under the coalition had made the situation worse by increasing fees from £3,000 to £9,000. He said most families had no chance of saving up the higher figure in a way that had been possible for some before.

He added: "It is no surprise that young Muslim people in my constituency are desperate to go to university and get the qualifications they need to get on in life.

"They want to improve their employment prospects and continue a great tradition of Muslim scholarship at the same time.

"You can imagine their dismay when they find that the student loans on offer to help with astronomical university fees are not compatible with their religious beliefs.

"They are essentially asked to choose between the future they want for themselves and their religious convictions - this is not a choice we should be asking anyone to make."

Mr Willetts said the evidence was that many Muslims do take out student loans as they are not deemed "commercial".

"At the moment, we do not believe there is a disproportionate exclusion of Muslim students from university because of anxieties about the fees and loans system," he added.

But he said the tackaful model - developed by experts in Islamic finance and provisionally approved by the Sharia Supervisory Committee of the Islamic Bank of Britain - would be looked at as a matter of urgency in the next parliament.

For the avoidance of doubt, he added: "This does not mean we are introducing Sharia law in the UK."