What is the ruling on cooperative associations?

The questioner : What is the ruling on a group of employees who agree that each employee pays a sum from his salary, and one of them receives this pooled amount at the end of each month, and so on until the number is completed? What is the ruling, Shaykh?

The Shaykh : And so on until

The questioner : the number is completed, meaning the cycle rotates.

The Shaykh : By Allah, I answer this by saying that it is most like gambling if the only intention is saving for each individual among the participants. This partnership is not valid unless an explicit condition is placed among them, which is that if one of the participants stops paying the amount due from him, like his peers, for one reason or another, he is forgiven and it does not remain a debt in his liability, making him a debtor to them. In this case, it falls under the category of cooperation in righteousness and piety. However, if the only intention is saving, there is an element of risk in its path. For example, suppose the participant who paid in the first month—assuming the shares are such that each person pays one hundred dinars or one hundred riyals—pays one hundred riyals at the end of the month, and then it happens that one of them takes, for example, ten thousand, or more or less according to the agreement, and then travels, then dies, then becomes unable, then falls ill, and so on, from the causes that surround a person which prevent him from continuing in this contribution. This is in exchange for one hundred, he took a thousand; in exchange for a thousand, he took ten thousand. But these ten thousand return the matter to be like an insurance company. The insured person, for example, pays a certain percentage each month on his car, or his property, or his life, as they claim. Many of the participants do not suffer an accident, such as a car accident, so the company did not take these amounts in exchange for anything at all, but in exchange for a chance, as they say today, "to be hit by the lot." Meanwhile, another participant has his car taken by the company and quickly smashed to pieces, so they compensate him with the same car, at the same value, with the same make and model, and so on. May Allah have mercy on you. Where did the company get this car from? Not from its own pocket, but from Zayd, Bakr, 'Umar, and so on. For this reason, this insurance is of the nature of gambling. So I think this is exactly like that, unless that condition of forgiveness is placed if a participant encounters one of those contingencies. Yes.

Another questioner : But some of them take the association's amount and take it outside the country to use it in corruption.

The Shaykh : This is not a valid objection, because this applies to any wealth a person acquires.

Another questioner : But if it is known

The Shaykh : If it were said that the participants do not include such a person as you are pointing to, does the transaction remain permissible or not? This prevents this contingency, but it has no relation to the original issue and the subject.

Another questioner : Our professor, it is said about these associations

The Shaykh : Yes.

Another questioner : that they are a type of loan with conditions attached. I do not lend my money to the association unless it lends me its money when my turn comes, for example.

The Shaykh : Where is the loan here? They all put all the participants' money into the box.

Another questioner : But each one lends to the others for a limited period, and does not lend to them unless they lend to him.

The Shaykh : This picture is not clear.

Another questioner : Meaning, each month one lender, each month all of them have lent to one. For example, five people, each month the four lend to this one...

Another questioner : Some will not be the payer; the beneficiary will be a borrower from at least three or four, meaning.

The Shaykh : Your statement is correct in cases where there is no exchange, meaning I lent you one hundred and you returned and lent me one hundred.

The questioner : Yes.

The Shaykh : There is no riba here, for riba does not occur except in the manner I mentioned earlier, which exposes the participant to the possibility of refusing. Whereas I lent you one hundred and you returned and lent me one hundred on another occasion, meaning.

Another questioner : Here there is a condition, professor, meaning I do not lend to you except on the condition that you lend to me, obligatorily, meaning the association's law.

The Shaykh : More or less?

Another questioner : The same amount.

The Shaykh : Yes, I do not think there is anything wrong with this, because the jurisprudential rule that some people think is new, and their saying is not correct: "Every loan that brings benefit is riba." The benefit intended here is the increase over the loaned amount of money, one hundred, one hundred and five, five hundred and ten, and so on. But here there is no increase; here there is only a reciprocal exchange, the exchange of the known for the known.