Shariah ruling about chit funds

Allah Ta'ala has created pure Rizq (sustenance) and has commanded us to earn lawful sustenance.  Halal earnings and pure food have a great effect on the body and the soul.  Even a morsel of Haraam food destroys the relish of worship and absorption in it.  It also creates various incurable diseases in the body.  The person in whose stomach even a morsel of Haraam earnings enters will be deprived of Jannah.

 

The anxiety about the means of earning should be much more than the anxiety of earning itself.  People have various ways of saving their money.  A great percentage of people use chit funds as well.

 

A group of people gather and mutually pool some money.  For a stipulated period of time, a certain amount of money is pooled.  Then every month through drawing lots or depending upon the need of the members, the whole amount is given to a certain person.  The other members of this group keep on paying their installments.  No extra amount is taken from any member and no member loses money in this.

 

This kind of system is permissible in light of the Shariah.  This is a method of helping out each other.  Each member pays installments and when the turn of this member comes, he/she gets the whole amount lump sum.  The money gotten before paying all the installments is like a loan and all the members are lenders.  The person taking the money before paying all the installments returns the loan by way of installments. 

 

However, reducing the amount somewhat and distributing it among the other members is impermissible and prohibited, as this is like a benefit on a loan, which is nothing but usury.  (Sood in Urdu).

 

It is mentioned in the Hadith:

 

Translation of Hadith: The Holy Prophet (Sallallahu alaihi wa sallam) has prohibited from such a loan which brings any benefit with it.  (Baihaqui, Vol. 5, Pg. No. 250)

 

Therefore, the Fuqaha (Islamic jurists) have clarified that this is prohibited.

 

In light of this, we can say that if in a chit fund, every member gets the whole amount which they pay in the form of installments, then a chit fund is allowed (Mubah).  If someone gets more than that amount and someone gets less then this is expressly forbidden.  All the members in such a fund are guilty of accepting and consuming usury.  The Holy Prophet (Sallallahu alaihi wa sallam) has cursed all those who are involved in usurious dealings.

 

There is a Hadith in Sahih Muslim:

 

It has been narrated on the authority of Hadhrat Jabir (May Allah Ta'ala be well pleased with him) that the Holy Prophet (Sallallahu alaihi wa sallam) cursed the one consuming usury, who makes others consume usury, those who write down the usurious transactions and those who witness and has said that all of them are equally guilty.  (Sahih Muslim, Vol. 2, Pg. No. 27)