Q. Is it permissible to contribute and benefit from a fund in this way: 12 people contribute a R1000 each to a fund for 12 Months. At the end of every Month, 1 person is chosen from the 12 people to benefit from the fund (R12.000.00) based on a draw. So, every Month, a new person is chosen to benefit from the fund (12.000.00) based on a draw. At the end of the 12 Months, every person would have contributed R12.000 to the fund and would have taken back their R12.000.00.
The benefit on such a fund is that the person who is chosen in advanced uses the money to his benefit whilst continuing to pay in installments but the person chosen last does not really benefit in any way although he gets his money back. Is this type of fund permissible?
A. One of the main purposes of forming a fund/union as explained in reference (also known as stokvels) is to assist one another with expenses on a Monthly basis. This is commonly practiced amongst family members and business people.
This type of fund/union is not formed as a partnership, investment scheme that generates profits or a loaning scheme. It is simply formed on the basis of loyalty and mutual understanding to mutually assist one another.
In the enquired situation, forming such a fund/union will be permissible. (Aap Ke Masaail Aur Unka Hal 6/262)
Note: One should ensure that such a fund/union is Shariah Compliant before forming or contributing to it by seeking guidance from the Ulama.
Allah Ta’ala Knows Best
Mufti Ismaeel Bassa