There is no zakah on charitable funds

Money that has been put in a charitable fund to give loans to the needy or to help them in emergencies such as accidents etc, is not subject to zakah, because it is money that does not belong to a particular individual, so it is like waqf funds, and no zakah is due on it. 

The scholars of the Standing Committee for Issuing Fatwas was asked: One of the tribes acquired a lot of money and they set this money aside specifically for blood claims that may be made against this tribe, and they used this money in business, and the profits made go back into the same fund. Is this money subject to zakah or not? If they did not use it for business, would it be subject to zakah or not? Can the tribe itself pay their zakah on its wealth to this fund?                                                                                                    

They replied: If the matter is as described, there is no zakah on the money mentioned, because it comes under the heading of a waqf, whether it lies idle or is used in business. It is not permissible to pay zakah to this fund, because it is not allocated to the poor or to any of the other categories who are entitled to receive zakah. 

Fatawa al-Lajnah al-Daa’imah (8/291). 

They were also asked: A charitable fund has been set up for tribal members, so as to meet needs that may arise, such as blood claims and the like, Allah forbid. Then this money was invested in some Islamic bank. Is zakah due on it or not? 

They replied: 

If the matter is as described and the money that was donated will not be returned to those from whom it was collected, and if the project fails it will be spent on other charitable causes, then no zakah is due on it. But if it will be returned to those from whom it was collected in the event of the project failing, then zakah must be paid by every individual according to his share in that fund, if it reaches the nisaab and one year has passed. End quote.  

Fatawa al-Lajnah al-Daa’imah (8/296). 

Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him) said about a village charity where the people paid money into the fund every month so as to help in the event of accidents, diyah claims and loans for those who needed to get married: These funds are not subject to zakah, because they do not belong to the participants and they are not the property of a specific individual. There is no zakah on that which does not belong to a specific individual. End quote from Majmoo’ Fatawa Ibn ‘Uthaymeen (18/184).