Are Chit Funds Allowed in Islam?

Ustadh Salman Younas is asked whether chit funds, the practice of pooling money and deciding who should receive the funds by lot, is permissible.

Question:

Assalam alaykum wa rahmat Allah wa barakatuh.

I want to know if chit funds are allowed in Islam. I’m referring to a chit fund where a group of people pool in a certain fixed amount of money every month and each month one of them is picked to receive the money that’s collected in a lump sum. The one to receive the money each month is selected by drawing lots.

Answer:

Wa alaykum assalam wa rahmat Allah wa barakatuh.

This would be permitted if there is no subtraction in the amount of the lump sum that is to be given to the individual whose name is drawn.

If a subtraction is made in order to pay a fee to the organizer or to distribute as commission among members, this would be akin to interest and impermissible. The rulings of interest apply because a chit fund is partly a borrowing scheme where some members act as creditors and others as debtors.

(Khalid Rahmani, Jadid Fiqhi Masa’il; Aziz Ahmad Qasmi, Chit Fund ke Islami Ahkam)

Salman

Checked and approved by Shaykh Faraz Rabbani.