The Ruling on Collective Loans

Question:
Honorable Shaykh, what is your opinion regarding what some people do, which they call a cooperative? Each person pays a sum of money, and when his turn comes, he receives the total amount collected for him. If this is forbidden, what is the operative cause of the prohibition? We need clarification on this.

Answer:
They call this a collective loan. Some scholars have permitted it because it benefits everyone. I hold that it is not permissible, because it is a loan with a condition, and a contract within a contract: a conditional loan contract within a loan contract. You do not lend to them except on the condition that they lend to you. A loan is a contract of kindness intended for doing good. If you tell a person, “I will not lend to you unless you lend to me,” that is not permissible. This is the reality of the collective loan: you do not lend to them except on the condition that they lend to you. If they did not lend to you, you would not have lent to them. What is this lawful loan?