Is dropshipping permissible?

Explanation

The non-compliant elements

Generally, in conventional dropshipping models, online retailers display products they do not personally own. They profit by selling goods to customers with a mark-up, and buying the same goods from suppliers at a wholesale price and cheaper price. The suppliers bear the responsibility of fulfilling and shipping these orders.

The non-compliant element is due to the dropshipper selling items they do not take possession of, and consequently generating profits without assuming the associated risks and liabilities of the assets.

Further, if the dropshipper is “selling” the item to the customer, then that is not permissible either, as he does not own the item being sold. The goods are owned by the supplier at the time of the dropshipper ‘selling’ these goods.

Alternative solutions

In pursuit of Sharīʿah compliance, we propose three alternative models that can be developed and structured to ensure dropshipping complies with Sharīʿah principles:

1. One such adjustment involves the dropshipper, or a proxy acting on their behalf, actually or constructively taking possession of the goods prior to initiating a sale. This alteration transfers the liability from the supplier to the dropshipper via a representative, such as a courier arranged by the dropshipper. However, this approach must ensure that the dropshipper does not enter into a sale first, rather the product can be booked simply as a pre-order and not a sale. In this case, the collected amount, even if paid in full, would function as a security deposit. The actual sales contract would only be executed and processed once the item has been collected by the dropshipper’s courier service and agent. This process ensures that the dropshipper is selling an item they truly own, aligning with the Sharīʿah mandate, prohibiting the sale of items not owned by the seller. If this provision is not met, the transaction would be in violation of Sharīʿah principles.

2. Another model that can be considered is entering into dropshipping via Bayʿ Salam, where you sell assets based on the following rules:

• The full price must be paid when the sale is enacted. Failure to do so equates to selling a debt for a debt, which is expressly forbidden.
• Bayʿ Salam can only apply to commodities with fully specified quality and quantity.
• The sale cannot be specific to a product from a particular field or farm. For instance, if the seller agrees to supply wheat from a specific field or fruit from a specific tree, the Bayʿ Salam is invalid. This rule applies to any commodity with uncertain supply.
• The quality of the commodity must be clearly specified to avoid ambiguities that could lead to disputes. All necessary details should be clearly defined.
• It is crucial that the quantity of the commodity is unequivocally agreed upon. The measure or weight, according to the market standard of the commodity, must be determined.
• The exact date and place of delivery must be specified in the contract.
• Bayʿ Salam cannot apply to things that must be delivered on the spot. For example, if gold is purchased in exchange for silver, shariah mandates simultaneous delivery of both.
• The commodity must remain available in the market from the contract’s inception date until the delivery date. Therefore, if the commodity is not in the market at the time of the contract, Bayʿ Salam cannot apply, even if the commodity is expected to be available at the delivery date.

Even after entering in a Bayʿ Salam, the dropshipper must take possession. After taking possession of the goods, either actually or constructively, the dropshipper can ship it to the customer. Constructive possession means that a party gains control over the goods and bears the underlying risk.

This perspective of constructive possession is also mirrored by Mufti Muhammad Taqi Usmani, in his work Fiqh al-Buyūʿ. He accentuates the critical need for the seller to possess the goods, either physically or constructively, before facilitating a sale. Any transaction that does not meet this essential criterion lacks validity, thereby emphasising the requirement for such strategic adjustments in the dropshipping model to ensure compliance with Sharīʿah principles.

3. Another viable alternative within the dropshipping paradigm involves the commission-based model. In this model, an individual serves as a broker for the supplier, earning a commission for facilitating transactions between the supplier and the customer. For instance, a fixed percentage per sale can be agreed, or a fixed amount can be set, and that can be the gain of the dropshipping intermediary. What is key to note in this model is that the dropshipper is not the seller, he is simply representing and supporting the supplier in making and facilitating transactions. There is only one sale, between the supplier and the customer.

Imam Muhammad’s (d.189 AH) view on the acceptability of commission due to customary practice in the markets in this manner has been detailed in renowned legal texts such as the Hāshiyah of Ibn ‘Ābīdīn (d.1252 AH) and recorded in the Fatāwā Tātarkhāniyyah. These scholars have generally validated such transactions and agreements due to their widespread practice and societal necessity.