Shariah compliant alternatives to dropshipping
Question:
Assalamu Alaykum Respected Mufti. I read your Fatwa regarding dropshipment. I have a question regarding this. Is it permissible for me (retailer) to purchase goods on dropshipment. For example, I buy milk from clover. I order the goods directly from clover with agreed prices etc. Clover delivers directly to me. However Spar headoffice holds the account. So I basically pay them (SPAR) after 21 days (account) without any interest. SPAR then pays clover at their agreed terms and takes a commission probably. So effectively I order from clover. Clover delivers to me but I only pay SPAR headoffice after 21 days and they pay clover.
Question 1: Would such a transaction be permissible for me as a buyer.
Question 2: Can I buy goods through takealot for example. They don’t have the goods in stock. I pay them and they arrange with the supplier to deliver directly to me. Would that be permissible for me to purchase as a buyer?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Dropshipping is a sales fulfilment method where the merchants instead of warehousing the goods, purchase the goods from the wholesaler or suppliers who then supplies directly to the customer or end user client.1 For example, Person A purchases an item from person B over the internet via an e-commerce store, person B does not own the item and simple purchases the item after the initial sale from person C who then supplies the item to person A.
According to Shariah, actual ownership (Milkiyyah) and possession whether actual or constructive (Qabdh Haqeeqi and Qabdh Hukmi) is required for the effectuation of a valid Shariah compliant purchase and sale agreement (Bay Saheeh). The practice of conventional dropshipping as commonly understood is impermissible since such a transaction entails the sale of an item not within one’s sole proprietorship and possession (Qabdh and Milkiyyah). Rather the wholesaler owns and possesses the item before the transferral of such item to the end user client. The proprietorship and possession of the item never transfers to the original seller and hence such a transaction will be impermissible.
There are hence two fundamental non-Shariah compliant flaws in the above referred conventional dropshipping concept:
1. Ownership (Milkiyyah)
2. Possession (Qabdh)
With regards to the first issue, the seller could execute a valid Islamic forward sale agreement called “Salam”. Salam essentially refers to the advance payment on the spot for the delivery of specified commodities at a fixed maturity date. The general terms and conditions of the dropshipping agreement between the merchant and the retailer merchant could be modified and amended for Shariah compliance. The specific references to the different roles could be identified and the voidable and invalid conditions (Shuroot Faasidah and Baatilah) could be removed and settled.
You can learn more about “Salam” by downloading and reading my book called “Your Brief Guide to Islamic Finance” here: https://www.shariahbusiness.com/
Secondly, with regards to the issue of Qabdh and possession, conventional dropshipping is not permitted since that entails the transferral of proprietorship directly to the purchaser or end client without the possession of the retailer merchant. There are several Shariah compliant alternatives to this issue.
In the instance that the retailer owns the commodity of sale (Mabee), the retailer merchant can simply appoint the supplier or wholesaler to package the goods in the branding of the retailer merchant and hence that will constitute a valid form of Qabdh (possession). 2 This could be done by the order fulfiller in a fulfilment centre providing a customised packing slip with the specific branding of the retailer merchant.
However, if the retailer merchant does not own or possess the goods as is generally the case in dropshipping, then the seller could either appoint the shipping company as an agent (Wakeel) on its behalf to possess the items after the actual effectuation of the Salam purchase and sale agreement or the seller can appoint a third party employee/designated individual within the organization of the wholesaler/supplier to serve as an agent (Wakeel bil Qabdh) on behalf of the seller. It is imperative for an actual nomination in the form of specific Wakalah (representation) agreement be executed between the seller and the representative of the seller for the representation (Wakalah) to be Shariah Compliant.
With regards to the specific query you have raised, we do understand the practical realities on the ground in terms of amending the dropshipping agreement with the shipping company. We do advise that in such an instance that a confirmation of nomination/representation be sought from the shipping company and a specific agency fee be specified for and on behalf of the shipping company in full copy of the original wholesaler and supplier. That would constitute a tacit (Taqdeeri) form of implied approval of the representation/nomination of the shipping company from the side of the wholesaler, merchant and shipping company. That could be done via an email correspondence or confirmation. However the merchant can also consider appointing an employee of the shipping company or an employee of the wholesaler as a proxy (Wakeel Bil Qabdh) to receive the goods on behalf of the merchant and then hand over such goods to the shipping company. You could also seek the explicit approval of the supplier or wholesaler to separate the two contractual agreements for shariah compliance purposes, viz. the wholesaler purchase and sale agreement and the shipping agreement.
We also understand that certain e-commerce and online platforms do allow for direct shipping fulfilment by the dropshipper being the retailer merchant. In this instance, you could simply setup a direct shipping account and charge an all-inclusive fee as part of the Salam advance fee (Ra’sul Mal). In this manner, the merchant has received the goods via representation (Wakalah Bil Qabdh) through a third party and has effectively transferred the proprietorship to the end user client in a valid Shariah Compliant manner. In any event, you may also forward to us the structure of the specific dropshipping agreement you refer to for our specific Shariah review.
We also confirm that the Fatwa issued by Muhtaram Mufti Zubair Butt (Hafizahu Allah) is correct as stated in your query and as per our understanding.
You are also welcome to visit our youtube channel here for a detailed audio recording on the issue of dropshipping: https://youtu.be/g-f4iwgqL3Q
You can also listen to a weekly programme called “Shariah Compliant Business Campaign” which addresses contemporary business matters on Channel Islam International to learn more here: http://ciiradio.com/listen-live/
You are welcome to contact us directly at the Darul Iftaa for any advice to structure a shariah compliant dropshipping Salam agreement at: https://www.shariahbusiness.com/about-us/ask-a-question/
The Darul Iftaa is open from 9 AM to 9 PM Monday to Friday and 8 AM to 12 PM on Saturday.
and Allah Ta'ala Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee
Darul Iftaa, Durban, South Africa
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