What is the ruling on workers' cooperative associations?

The questioner : Here is the second question, which asks: What is the ruling on cooperative associations? Are they permissible? Perhaps you have heard of them, where a group of people gathers, and each person pays, for example, one thousand riyals every month, and each month one of them receives it, and so on?

The Shaykh : Yes, we have been asked about this repeatedly. We say that if it is merely cooperation, meaning that each individual among the cooperating partners retrieves what he deposited in this company on a certain day, and if it is on this condition, then it is most like gambling. This is because a time or day will come for one of these partners when he is unable to continue paying what they agreed upon, as I said, a thousand or a hundred, for example, monthly. So, in this scenario, let us simplify the picture: one of them paid a hundred or a thousand, and the lottery was drawn at the end of the month, and he received, for example, ten thousand. Then, afterwards, he fell ill, died, or withdrew to the end due to one of the unforeseen causes. So, he took ten thousand in exchange for a thousand; this is gambling. But if a clause is placed in this cooperative company stating that this cooperation is based on forgiveness if one of the partners refrains for some reason or is unable to do so, it is necessary to place very clear conditions so that the operation falls under the category of cooperation for good. If such a condition is placed, the operation is permissible and sound, and indeed, it is encouraged.
Mashhur: The Shari'ah encourages lending, and the Shari'ah has many hadiths regarding lending and giving respite to the insolvent. We have preceded you to all good, and this is a matter that has implications for the predecessors. So, if an objector says that something like this causes one to miss out on such a reward and such an obedience, which has become neglected, and it also helps in its abandonment, thereby deterring people from it, what do you say about such a thing?

The Shaykh : Deterring people from what?
Mashhur: From the associations, and he encouraged the owners...

The Shaykh : If conditions are set, there is no encouragement.
Mashhur: So that lending and giving respite to the insolvent and acts of obedience remain and are not neglected or die out.

The Shaykh : This is not from the category of lending, may Allah reward you.
Mashhur: It is a substitute for lending. People are driven to it. People do not resort to such associations except when they find no one to lend to them.

The Shaykh : All right, may Allah reward you, Professor. It is not hidden from you that any issue is viewed from two sides: the one conforming to the Shari'ah and the one contradicting the Shari'ah. So, what is the answer to the scenario we mentioned earlier? If a man paid the first installment of a hundred or a thousand, and the partners were, for example, ten people, and the lottery was drawn at the end of the month, so this one who paid a hundred took a thousand, and then he refrained from participating. Does the Shari'ah approve of this?
Mashhur: This is gambling.

The Shaykh : All right, if conditions must be set...
Mashhur: I say that in the scenario with conditions, it reduces the acts of obedience and reduces lending. Meaning, increasing this will give...

The Shaykh : If without conditions, we have only one of two states: either with Shari'ah conditions or without conditions. And praise be to Allah, the matter is clear that without conditions, as we said and you said, it is gambling. So, if that is not the solution, what is the solution? Conditions.
Mashhur: Conditions, yes. But do we encourage people to join such associations, or do we remind them of this aspect, which is the aspect of lending and the virtue of lending and giving respite to the insolvent, and so on? People today do not know anything about lending in reality.

The Shaykh : Now, clarify your intent, may Allah reward you. Yes, we agree with you that we command them and remind them to extend the good loan to the poor, and we remind them of such as his saying (peace and blessings be upon him) meaning, whoever lends his Muslim brother two dinars, it is as if he gave one dinar in charity. This is from the virtues of the good loan, which, unfortunately, we rarely find a trace of in our days, where the interest-based loan has taken the place of the good loan. This is what the banks have been afflicted with, and especially some of them called Islamic banks. So, I add my voice to the voice of Abu 'Ubaydah, may Allah reward him with good, in urging Muslims to be cooperative for good in the way of our righteous predecessors. But this, of course, does not prevent the formation of associations and the setting of conditions and rules for them that do not contradict the Shari'ah in any way. And yet, I said and I continue to say that I do not encourage students of knowledge to occupy themselves with composing or forming charitable associations that require them to exert efforts to collect and hoard money and to set the Shari'ah expenses for them. This requires a very great effort. And we encourage students of knowledge to leave such charitable work to those who do not have the capacity for deep understanding and learning. This is a word on such an occasion.

Another questioner : Our Shaykh, a question: If the participating member in this association does not take by lottery, but leaves the amount until he completes the payment, meaning he has ten shares, and then he takes it, meaning he does not take, and he has, for example, nine shares in his debt, is the scenario permissible?

The Shaykh : It is permissible. I do not see a preventer in this if this condition is set. Yes.