The structure decides it, and there are two very different structures sharing one name. A simple rotating committee - everyone contributes the same amount each month, one member receives the whole pot each month chosen by lot, and everyone eventually receives exactly what they put in - is permissible and widely practised. Nobody gains more than they contributed and nobody loses, so there is no increase to characterise as riba. The registered bidding chit fund common in India is different. Members bid to receive the pot early, accepting a discount, and that discount is distributed among the others. The person taking money early receives less than they will repay, and those waiting receive more than they contributed - which is an increase for time, distributed among the participants rather than paid to a bank. Darul Uloom Deoband and other Indian institutions have addressed this directly, and Shariah-compliant chit schemes have been established in India using a zero-bidding model.
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Because nobody receives more than they contributed. In a bank loan you repay more than you borrowed, and that excess is the price of time. In a simple committee, twenty people each pay 100,000 in total and each receive 100,000. The only thing that differs between members is when they receive it, and timing by itself is not a quantity anyone paid for. Remove the increase and the riba objection has nothing to attach to.
The discount. A member who takes the pot early accepts 90,000 but still pays instalments totalling 100,000 - so they paid 10,000 for early access. The members who wait share that 10,000, receiving more than they contributed. That is an increase paid in exchange for time, which is riba. It does not become permissible because participants rather than a bank collect it; the structure of the transaction is what the ruling follows.
A fee for genuine administrative work - collection, records, disbursement - is not automatically objectionable, since real service may be paid for. The practical difficulty is that in registered chit funds the foreman's commission is bundled into the same discount mechanism that creates the impermissible increase, so it cannot be cleanly separated. In an informal committee run by a member who takes nothing, the question does not arise.
Equal in, equal out, order by lot
The traditional family or neighbourhood committee, where everyone contributes the same monthly amount, one member receives the full pot each month by lot, and every member receives exactly what they paid in over the cycle. No deductions, no bidding, no commission.
Keep the group small and among people you genuinely know. Record every contribution - the structural risk here is default, not riba.
Evidence used to explain the general principle. These references do not replace personal scholar review.
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