All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.
The jurists are agreed that it is lawful to take or give prizes in camel and horse racing and in throwing arrows (javelin) competitions if the prize is from one of the competitors or from a third party.
Their evidence for this is the Hadeeth of the Prophet who said: “There is no competition or race (accepted in the Sharee'ah) except in arrow heads or horse and camel hooves.” [At- Tirmithi, An-Nassa’i and Ibn Maajah]
However, the scholars differered in opinion with regard to other competitions like running, or the races of elephants, mules and donkeys as well as competing in swimming, wrestling and weight-lifting.
They also have different opinions regarding giving prizes in religious competitions, like Quran memorization contest, or memorizing a number of Prophetic Ahadeeth or writing a religious essay. A group of scholars are of the opinion that this kind of competitions and their prizes are lawful and their opinion is the most preponderant one, Allaah willing.
Imaam Ibn Al-Qayyim said in his book entitled Al Furoosiyah (horsemanship): “The contests on Quran memorization as well as on Fiqh, Hadeeth and other beneficial knowledge, can they be subjected to prizes and financial compensation? The Maaliki, Hambali and Shaafi’i Schools forbid such prizes while the Hanafi School as well as Ibn Taymiyyah consider it lawful. The great scholar Ibn 'Abd Al Barr reported that Imaam Ash-Shaafi’i also consider it lawful. So, if the scholars consider wrestling, swimming, etc. lawful, then it would be more appropriate that they consider religious contests with prizes lawful as they are more beneficial.”
So, if the aim is to strengthen the religion and raise high the Word of Allaah, then such contests become lawful.
No doubt that allotting prizes for the Quran memorization contests encourages some Muslims to memorize the Quran and this, in turn, can have many good results not only for the competitors but also for other people who might profit from them in the future by learning the Quran.
Therefore, we believe that your initiative is lawful provided the following conditions are met:
1) There should be at least one competitor who does not pay the 2 dollars just to make the competition lawful.
2) You should not take more than what the competition and its prizes need. Now, if there is more than that, you should return it to people or get their permission to spend it on other matters, like on the Islamic Centre itself.
Allaah Knows best.