Shariah Compliant Dropshipping Methodology
Question:
I am emailing in regards to the shariah compliant drop shipping method you spoke about on Twitter. Look forward to hearing from you. JZK.
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.
Essentially, there are four fundamental elements and role players in a Salam transaction:
1. Muslam Ilayhi – The seller
2. Rabbul Salam – The purchaser
3. Muslam Feeh – The item/commodity of Salam
4. Ra’sul Mal – upfront cash purchase price
For example, Zaid purchases 100 tonnes of wheat for 1000 USD from Bakr to be delivered at ABC warehouse on the 15th of October 2021. Essentially the Rabbul Salam is Zaid as the purchaser, Bakr is the Muslam Ilayhi and the wheat as the commodity of the Salam transaction is the Muslam Feeh. Salam is valid based on the following conditions:
1. Full payment of the price should be made at the time of effecting the sale. Failing to do so will be tantamount to a monetary exchange of commercial paper or debt for debt which has been expressly prohibited in the Shariah. (Bay al-Kali bi al-Kali).
2. Salam can only be effected for those commodities whose quality and quantity can be specified. The quality of the commodity must be fully specified leaving no ambiguity that may lead to a dispute. The commodity should be clearly specified and defined leaving no possibility for a future potential dispute. The specifics of the Salam item (Muslam Feeh) should be well advertised and clearly defined. In the age of cybercrime, the retailer merchant should ensure that the goods purchased are also genuine, well-advertised and clearly defined.
3. Salam cannot be effected for a particular and specific commodity or a product. For example, the watermelons of a specific farm.
4. The date and place of delivery must be specified and clearly defined.
5. Salam cannot be effected in respect of things which must be delivered at spot such as gold and silver which are premised on the specific laws and regulation of Islamic currency trading (Bay al-Sarf).
6. The Salam commodity should be easily available in the market at the time of contract and, at the very least, at the time of delivery. The preferred view in the Hanafi Madhab is that the item of Salam should be available in the market place at the time of the execution of the Salam. 2
7. The purchase price is paid upfront and specified.
8. The Salam commodity or product should be of a fungible nature (Mithli) and not non-fungible (Qeemi).
9. The delivery of the Salam commodity according to the Hanafi Madhab should be after a period of 30 days from the date of execution of the Salam contract. Imam Malik Rahmatullahi Alayhi is of the similar view. However the views of Imam Shafi’ee and Imam Ahmad Bin Hanbal is that there is no specific and minimum requirement for such a time period. Due to general need (Haajah and Umoome Balwa) and for broader expediency purposes, this view could be adopted.
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). 3 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.
Another important issue is that of the “returns policy” in the dropshipping agreement. The returns policy should not be fixed/time bound as is the case with certain agreements. The option to return a defective item is not limited to a fixed time but the sole and definitive right of the purchaser. We would need to review the underlying terms and conditions of the dropshipping agreement to ensure a fully shariah compliant agreement.
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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