How does Islam view cooperatives?

Islam supports cooperatives, including cooperative banks and cooperative insurance. The condition is that no interest creeps in and that those in charge act honestly.

When people join together to farm land, buy goods or stand by one another, that is in keeping with the spirit of Islam. The first verse above calls on people to help one another in what is good. The hadith shows how much the Holy Prophet Muhammad (saw) valued people who, in times of need, pooled everything they had and shared it fairly.

That is why cooperative banks and cooperative insurance are also permitted in Islam. The difficulty usually lies elsewhere. In many countries the law or the lenders bring interest back into the picture. If a cooperative borrows its money from an ordinary bank that demands a fixed return, that interest ends up shaping the whole community. The second verse above draws a clear line between lawful trade and forbidden interest.

A better way is to lend without interest. The farmer pays back only what he received and nothing more. In this way the fruit of his work stays with him and with the cooperative.

The greatest danger to cooperatives, however, is often not money but morality. When those in charge are dishonest, build up their own influence and take advantage at the expense of other members, even the best project fails. A cooperative depends on all its members having equal rights and on its leaders acting faithfully and honestly.