If your group collects savings and lends money to members without interest (or riba), then it is 100% halal (Shari'a-compliant). Read more about Qard al-Hasan on the wikipedia page.
Your group may also ask for an administrative fee from members as long as this fee is not contingent on the size of the money request or the duration of repayment. There are also ways to create savings clubs that issue interest free loans that are secured without using interest:
Example secured loan fund (halal)
To create a secured, interest-free loan fund, you could set up two related pools:
- Pool 1: The main savings and loan fund. Members contribute regularly, and loans are made from this pool without interest.
- Pool 2: A loan security fund. Members contribute smaller amounts here to provide collective protection against losses.
Both pools grow over time. Members do not withdraw from Pool 2, but if there is a loss or default in Pool 1, funds from Pool 2 can be used to cover it.
This model keeps the system fully halal: zero interest, zero profit-making, 100% mutual aid.
Interest on Kin shares
Kin Co-operative offers shares so that members can invest in the work of the co-op. There are contrasting views on whether community share interest is Shari'a-compliant. We have received advice that share interest may be compliant for the following reasons:
- interest is a distribution of profit - no profit, no payment due;
- it is subject to approval by the general meeting - so it is not a contractual right;
- capital is fully at risk - so it is not even a loan of money in the first place;
- since it is a co-operative and you are also an owner, there is no external individual(s) who keeps the balance of profit at the expense of the percentage-takers.