If your group collects savings and lends money to members without interest (or riba), then it is halal (Sharia-compliant).
Your group may 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.
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.