All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon Prophet Mohammad and upon all his family and companions.
In Arabic, the above is called "Jam`iyah" and it rests on the idea that a group of people would contribute a set sum of money every month so that each one of the group receives the total sum of the group's contributions. This kind of lending system is permissible from the perspective of Sharia and doesn`t go under the Sharia maxim "Every loan which attracts benefit is Riba/Usury" for several reasons:
First: Participants engage in this kind of lending (Jam`iyah) as a show of sympathy and solidarity.
Second: Scholars have commented on the above Sharia maxim and pointed out that the forbidden benefit refers to the extra amount charged over the loan itself and not every benefit in general. In the above system of lending (Jam`iyah), no extra amount (Usury/interest) is charged over the loan/total sum itself.
Third: Jurists have forbidden the so called (Lend me, I lend you), which isn`t the case in the above system of lending (Jam`iyah). It is stated in [Hashiyat al-Khaluobi, Vol.7:P.338] "A group of women would contribute a set sum of money every week or month so that each one of the group receives the total sum of the group's contributions. This form is permissible as said al-Wali al-Iraqi." And Allah the Almighty knows best.