Is Dropshipping Shariah compliant?
بسم الله الرحمن الرحيم
Dropshipping is a method of product sourcing where a retailer [dropshipper] sells products without holding inventory. When a customer orders, the dropshipper buys the item from a third-party [supplier] that handles everything that happens after the sale e.g. packaging, transport etc., then ships it directly to the customer [without the dropshipper taking prior possession of it]
Dropshipping is not Shariah compliant because of two factors. Firstly, the dropshipper sells items in which he does not own and secondly, [by not having possession of the item], profits without taking liability.
The Prophet ﷺ prohibited the sale of an item in which the seller does not own.
عن حَكيمِ بنِ حزامٍ قالَ يا رسولَ اللَّهِ يأتيني الرَّجُلُ فيريدُ منِّي البيعَ ليسَ عِندي أفأبتاعُه لَه منَ السُّوقِ فقالَ لا تبِع ما ليسَ عندَكَ (أبو داود)
Hakeem ibn Hizaam (ra) said: I came to the Messenger of Allah ﷺ and said: A man may come to me wanting to buy something that I do not own; should I [conclude the sale thereafter], buy it for him from the marketplace then sell it to him? He said: Do not sell that which you do not possess. [Abu Dawood]
Also, the Prophet ﷺ prohibited the sale of an item without having possession of the item.
عنِ ابنِ عَبَّاس رَضِي الله تَعَالَى عَنْهُمَا أنَّ رسولَ الله صلى الله عَلَيْهِ وَسلم نَهَى أنْ يَبِيعَ الرَّجُلُ طَعَاما حَتَّى يَسْتَوْفِيَهُ قلْتُ لاِبْنِ عَبَّاسٍ كَيْفَ ذَاكَ قَالَ ذَاكَ درَاهِمُ بِدَرَاهِمَ والطَّعَامُ مُرْجَأ (البخاري)
Ibn `Abbas [ra] said, “Allah’s Messenger ﷺ forbade the selling of foodstuff [or any other item] before its measuring and transferring into one’s possession.” I [the narrator;Tawoos] asked Ibn Abbas, “How is that?” Ibn Abbas replied, “It will be just like selling money for money, as the foodstuff is delayed (i.e. it has not been handed over to the first purchaser who is the actual seller). [Bukhari]
Nb: The Hadith refers to the sale of all items not only foodstuff.
Selling an item without actually taking possession (liability) of it is actually Riba (interest). Alaamah Ayni [ra] explains the statement of Ibn Abbaas [ra], in his commentary of Salih al Bukhari; If a person buys some food from a man for one dirham to be delivered later, then he sells it back to him or to someone else before taking possession of it for two dirhams, that is not permissible because it is in effect selling cash for cash, when the food is not there. So it is as if he sold his dirham with (which he brought the food) for two dirhams, which is Riba, because it is selling something that is not there (not in the possession of the seller) for cash. Thus, this (transaction) is not valid.
For this reason, the Prophet ﷺ prohibited seller from profiting without taking liability. This occurs when the seller concludes a sale contract without actually having possession of the item.
It must be understood that the transfer of ownership is distinct from possession. Ownership is transferred when a sale contract is concluded (by an offer and acceptance, which is the transaction itself). Possession on the other hand is not automatically ascertained by a mere transaction, rather by the ability to receive, access or use the sale item.
The key distinction between the two is that the risks associated from the sale item and the ability to gain economically from the sale item is only transferred with possession, not just ownership. Only when the purchaser takes possession of the asset does he bear the risk and liability.
There are two contractual forms of possession
- Actual Possession (physical delivery)
- Constructive Possession (access without restriction)
Actual Possession is physically taking receipt of the subject matter. Physical possession symbolises power, authority, exclusivity and control over the asset, which indicates to bearing the liability and risk of the asset.
Constructive Possession refers to the transfer of power, authority and control over an asset even if one does not physically have their grip on the asset. Constructive Possession includes;
- Allowing the buyer complete access of the object of sale without placing a hindrance.
- Legal Registration of an assets (vehicles, land etc.)
- The possession of documents, like bills of lading and warehouse receipts (etc.)
- Account transfer (money, shares etc.)
For further information regarding Possession and its types, please refer to Aaoifi’s Shari’ah Standard No. (18) Possession (Qabd) & The International Islamic Fiqh Academy (IIFA) Resolution No. 53 (4/6) Qabḍ (Taking Possession)
Shariah alternatives to Dropshipping
- Bay’ al Salam; provided that the online retailer takes possession of the item from the supplier before selling it to the customer and all the conditions of Bayʿ al Salam (forward sale) are adhered to.
Nb: Generally, the supplier bears the responsibility, liability, and risk of the asset until it reaches the end customer [thus making it non-shariah complaint]. If however, the retailer takes possession of the item before it reaches the customer the transaction will be shariah compliant.
- Agency; the customer requests a commodity from the retailer who would source and purchase the item for the customer at a specified time in return for a specified commission [wage], in this case, the retailer acts as his agent in buying the commodity and is not entitled to anything more than the agreed-upon commission. The item goes directly from the supplier to the customer [without the need of the agent taking possession].
- Mutual Agreement; The online retailer may source the required item and purchase it for the customer, with the promise that the latter purchases the item upon acquisition. Thereafter, the retailer, upon having full possession of it, can then mutually conclude the transition with the customer.
Nb: Initially, the agreement is not binding upon either party. However, it’s the moral duty of each to fulfil their promises. Upon acquiring the item, the price can be renegotiated.
Nb: The seller cannot legally impose on the customer to purchase the item if the potential customer refuses to purchase the item ordered at his behest.
This same ruling will apply to other types of product sourcing business. Take for example, A customer orders a pallet of Bescrete Concrete Blocks (8x8x16) from a Hardware. The Hardware does not have any in stock. The hardware then orders the blocks from a supplier. The blocks are then delivered to the customer.
The transaction will only be shariah compliant if the Hardware were under take one of the following methods;
- The customer pays for the blocks upfront in full. Thereafter the hardware assumes liability is any form e.g. by picking up the blocks from the supplier directly or through agency and delivers it to the customer. This will be in accordance to Bai’ Salam. If, however the supplier were to deliver the blocks directly to the customer without the seller having any liability in making profits, the transaction will be non-shariah compliant.
- The hardware does not conclude the sale initially, the advance money [fully or partially] by the customer will be considered a trust [Amanah]. The hardware then purchases the blocks from a supplier. The hardware will then take possession of the blocks [physically or constructively] and deliver it to the customer. Upon receiving the blocks, the trade can be concluded with the customer.
A person must ensure that his transactions are in compliance with the laws of the Shariah.
And Allah Ta’ala Knows Best
Mufti Kaleem Muhammad
Darul Iftaa, Jaamia Madinatul Uloom
 عمدة القاري شرح صحيح البخاري (11/ 250)
 عن ابْنَ عَبَّاسٍ ـ رضى الله عنهما يَقُولُ أَمَّا الَّذِي نَهَى عَنْهُ النَّبِيُّ صلى الله عليه وسلم فَهْوَ الطَّعَامُ أَنْ يُبَاعَ حَتَّى يُقْبَضَ. قَالَ ابْنُ عَبَّاسٍ وَلاَ أَحْسِبُ كُلَّ شَىْءٍ إِلاَّ مِثْلَهُ (البخاري)
 عمدة القاري شرح صحيح البخاري (11/ 250)
مَعْنَاهُ: أَن يَشْتَرِي من إِنْسَان طَعَاما بدرهم إِلَى أجل ثمَّ يَبِيعهُ مِنْهُ أَو من غَيره قبل أَن يقبضهُ بِدِرْهَمَيْنِ مثلا، فَلَا يجوز لِأَنَّهُ فِي التَّقْدِير: بيع دِرْهَم بدرهم، وَالطَّعَام غَائِب، فَكَأَنَّهُ قد بَاعه درهمه الَّذِي اشْترِي بِهِ الطَّعَام بِدِرْهَمَيْنِ، فَهُوَ وَربا، لِأَنَّهُ بيع غَائِب بناجز فَلَا يَصح
 The entire price must be paid upfront. It is not allowed for buyer to defer in payment. Because, the subject matter of Salam contract is already deferred and a debt (obligation) on seller. If the price is also deferred, then it becomes the sale of a debt for a debt which is not allowed in Shariah.
The Salam contract can be affected on the goods which can be clearly defined in terms of quality and quantity.
The item being sold is interchangeable and fungible (known as “mithli” in fiqhi literature), which do not differ from each other significantly.