#153: Modern Kootu Funds
Question:
Is it permissible to be involved in Kootu funds according to syara’?
Answer:
Alhamdulillah, praise and gratitude to Allah SWT for His countless blessings for us all. Praise and salutations to our beloved Prophet Muhammad PBUH, his family, companions and all those who follow his footsteps until the Last Day.
Originally, getting involved in Kootu fund (chit fund/tontine) is permissible as long as it doesn’t involve riba (usury/interest), oppression and other prohibited elements. This terminology in Arabic is known as al-Jum’iyah (الجمعية). According to Imam Syihabuddin al-Qalyubi: al-Jum’ah (Kootu fund) is famous amongst the women where a group of women will pay a set amount every month each. Then each will be paid according to her turn. This is permissible as stated by al-Wali al-Iraqi. [1]
Hai’ah Kibar Ulama’ Committee has decided regarding Jum’iyat or kootu fund in their 4th convention in the city of Taif, dated 16-26/2/1410 H:
“Hai’ah Kibar Ulama’ Committee has considered the request of a fatwa regarding al-Jum’iyat presented by some workers, teachers and others to the Research Knowledge Office, Fatwa, Dakwah and Guidance and it is referred to Hai’ah Kibar Ulama’ Committee regarding the ruling: “Some workers who mostly work together in an organization, school, department or others have agreed that each of them will pay the same set amount and it will be handed to one person at the end of the month according to their turn and the second month to the next person and so on, until everyone will end up receiving the same amount without any addition or deduction.
As presented by the research prepared by Syeikh Abdullah bin Sulaiman al-Mani’ regarding the regulation of loan that is beneficial, followed by discussions and meetings about it, the committee finds that nothing is preventing such an affair, for the recipient benefits where the creditor did not deduct anything from the money being loaned, furthermore, it gives the same benefits for both the debtor and creditor. It also benefits them both without endangering any one of them or increasing profit to any one of them. Shariah doesn’t prohibit benefit that doesn’t harm anyone and even state its truth.” [2]
The basis of kootu fund is that the money received is actually just the money he himself saved for the future. When it is his turn, then as a member he’ll be able to use it immediately due to the commitment payment from each member of the group. According to syara’, it is seen as no-interest loan from all the members that join it. Hence, every month, each member will pay the loan where the loan money will return to him when it is his turn to the agreed amount.
If the kootu fund involves additional interest and profit such as a fee is required to join the fund, then it is prohibited.
Ibn Qudamah stated in al-Mughni: Every loan where additional conditional payment is required is prohibited without any khilaf. Ibn Munzir said: It is agreed that if the creditor set a condition to the debtor for additional payment of gift, then it is categorized as riba (usury/interest). This is as narrated from Ubai bin Ka’ab, Ibn Abbas and Ibn Mas’ud where they restrict loans that ask for benefit and interest. [3]
According to this, a benefit that is prohibited in a loan is a benefit that is particular to the creditor. As for benefit for the debtor, it is permissible. However, in ensuring that it is guaranteed to be free from any oppression, one must ascertain that the members who participate in it to be from amongst the trustworthy and responsible, known and there is a written agreement for the maslahat of all. Without it, the fund is exposed to lies and gharar. Written agreement regarding a loan is clearly mentioned according to the statement of Allah SWT:
يَا أَيُّهَا الَّذِينَ آمَنُوا إِذَا تَدَايَنتُم بِدَيْنٍ إِلَىٰ أَجَلٍ مُّسَمًّى فَاكْتُبُوهُ
“O you who have believed, when you contract a debt for a specified term, write it down.” [4]
Imam al-Baghawi in his commentary stated: Scholars differed as to the obligation of writing or recording a loan as stated in the above verse. Some scholars are of the opinion that writing or recording a loan is obligatory. However, the majority of scholars state that it is sunnah and it is fine if it isn’t done. [5]
In our opinion, kootu fund amongst trustworthy and responsible friend is permissible in syara’. The reaon is it is just a loaning activity in a limited and reasonable amount as well as written without any issue of oppression or others. Among the arguments we presented are:
First: Utilizing the methodology:
أَسْلِفْنِي وَأُسْلِفُك
“You give a loan to me and I’ll surely give you a loan in the future.” [6]
Nazih Hammad who is the author of the book Qadhaya Fiqhiyyah Mu’asiroh fi al-Mal wa al-Iqtisad [7] stated, this methodology is accepted in syara’ if the agreement of the loan between both parties doesn’t involve interest and profit, and the agreed amount remains the same without any additions and the duration for it to be paid also remains the same.
The reason is this type of loan promised to the debtor is not a loan that benefits or profits the creditor. This is due to the fact that benefit towards the creditor will turn it into riba (usury/interest) and cause doubt as mentioned in the methodology stated in the hadith narrated with a weak sanad by Abu Talib RA, where the Messenger PBUH said:
كُلُّ قَرضٍ جَرَّ نفعًا فهو رِبًا
“Every loan, which leads to a benefit, is usury.” [8]
Second: The act is not in the form of prohibited benefit
The majority of scholars stated that this act is permissible according to shariah, for it is not included in loan with interest that is prohibited by syarak. The set amount and duration of payment also remains the same. It makes it so that there is no excess benefit that can make it prohibited. While the condition for the creditor, although it is considered as one benefit, however, the benefit is the same for both parties and not just one party that could lead to oppression. [9]
Third: Oppression on one side of the agreement makes usury prohibited.
In this issue, there is no oppression happening to any parties, for both parties will receive the same amount after the same duration, just at different times. Whereas, agreement of a loan paid by a loan with the same amount and duration doesn’t contain any oppression to any parties as long as there aren’t any profitable conditions set in it. [10]
Ibn Qayyim said: “Shariah prohibits riba due to the oppression in it.” [11]
To close, we’d like to state that kootu fund or Jum’iyat is permissible as long as it doesn’t violate the terms set by syarak. We suggest several advice for kootu fund:
- Each member participating must be from people you know, trustworthy and keep to his promise as to avoid oppression that could happen in the future.
- Have a written agreement drawn up.
- The organizer cannot require any fee or profit from the kootu fund, for it could lead to riba.
- It shouldn’t be opened to the public rather just involve a small group.
However, we’d like to remind you that Malaysian law prohibits kootu fund and it is a criminal offence according to law. Act (Prohibition) Kootu Fund 1971. According to ACT 28 KOOTU FUNDS (PROHIBITION) ACT 1971, its interpretation is:
“kootu fund” means a scheme or arrangement variously known as a kootu, cheetu, chit fund, hwei, tontine or otherwise whereby the participants subscribe periodically or otherwise to a common fund and such common fund is put up for sale or payment to the participants by auction, tender, bid, ballot or otherwise and includes any scheme or arrangement which with variations partakes of the nature of a kootu, cheetu, chit fund, hwei or tontine;” [12]
To conclude, we state that Islam emphasizes justice and prohibit any form of oppression in any dealings including in the matters of finance. May Allah grants us understanding in this religion and distances us from getting involved in riba and oppression. Amin.
Wallahu a’lam.
[1] See Hasyiata Qalyubi wa ‘Umairah ‘ala Syarh al-Mahalli ‘ala Minhaj al-Thalibin, 2/258
[2] See Majallah al-Buhuth al-Islamiah, 27/349-350
[5] See Tafsir al-Baghawi, 1/349
[6] See Mawahibul al-Jalil, 4/395)
[7] See Qadhaya Fiqhiyyah Mu’asiroh fi al-Mal wa al-Iqtisad, pg. 229
[8] Narrated by al-Dailami di dalam al-Firdaus (4778). This hadith is dhaif as stated in Syarh Fath al-Qadir (7/232). Syeikh Bin Baz in Majmu’ Fatawa (25/256) this hadith is dhaif but the meaning is sahih according to scholars. Ibn Hajar al-Asqalani in Lisan al-Mizan (3/128-129) cited Imam al-Bukhari saying this hadith is munkar.
[9] See Qadhaya Fiqhiyyah Mu’asiroh fi al-Mal wa al-Iqtisad, pg. 230
[10] See Qadhaya Fiqhiyyah Mu’asiroh fi Iqtisad wa al-Mal, Nazih Hammad, pg 231)
[11] See ‘I’lam al-Muwaqqi’ien, 1/386)
[12] See: https://www.ssm.com.my/acts/fscommand/a0028s0002.htm