Fatwa: Is Dropshipping/Drop Servicing Halal?

This is iA the most comprehensive resource for this question on the internet.

We present views from Al Qalam, Islamweb, IslamQA, Sh. Asim Al-Hakeem and Sh. Muhammad Al Shareef then our resident expert Mufti Billal Omarjee presents his views, and finally IFG present a commercial perspective on the matter.

View One: Al Qalam

There are two principal issues of concern in the current practice of drop shipping. The first relates to the sale of what one does not own and the second relates to the sale of what is not in one’s possession.

As for the first issue, this may be overcome by using a salam contract between the online retailer and the customer [as identified in the question] for which the basic conditions are as follows:

  • The contract is definite without an option to rescind.
  • The product is properly specified.
  • The product is a fungible.
  • The contract is not for a specific item.
  • The product is available in the market at the time of contract and, at the very least, at the time of delivery.
  • The delivery of the product is deferred.
  • The price is properly specified.
  • The price is paid up in full at time of contract.
  • The date and place of delivery are known.
  • The product is not replaced with a different product.

However, the online retailer must first take possession of the product acquired from the manufacturer/wholesaler, either in person or by proxy, before the ownership of the retailer is complete. Whilst a salam contract may be contracted for what is not in one’s possession or ownership or what does not as of yet exist, it does not obviate the need for the online retailer to take possession of the product in order to effect proprietary transfer.[1] Therefore, the question remains as to how the retailer secures possession. In most cases, the manufacturer/wholesaler will be at a different location from the online retailer and so possession in person is not an option. This leaves only the option of possession by proxy. In a normal [non-salam] sale, whilst the manufacturer/wholesaler cannot be the proxy in his primary role as the vendor, he can be proxy subordinately under the instruction from the online retailer to deliver the product to the customer. Thus, under a normal sale, when the manufacturer/wholesaler forwards the product to the customer on behalf of the online retailer, the online retailer will be deemed to have secured possession of the product subordinately.[2] However, this does not hold true under a salam contract as, in the latter case, the salam contract alone does not effect proprietary transfer of a specific item but rather only confers the right to receive a non-specific item. Thus, the online retailer cannot appoint the manufacturer/wholesaler an agent to deliver the product to the customer as the specific product is not the property of the online retailer.[3] This leaves only the shipping company. However, the shipping company has a contractual relationship with the manufacturer/wholesaler and not with the online retailer. Thus, it does not appear possible to argue that the shipping company is proxy for the online retailer due to which the possession of the online retailer is realised. However, if the process is adjusted so that the shipping company has a contractual agreement with the online retailer to receive the product on behalf of the online retailer and then deliver it to the customer, then this can be valid. The possession of the shipping company will conclude the salam contract after which it will be charged to deliver the product to the customer.

And Allah knows best.

Mufti Mohammed Zubair Butt

Source: here

View Two: Islamweb

First of all, we thank you for your keenness on learning your religion and seeking to earn lawful earnings and fearing what is forbidden; you are absolutely right in doing this.

What you mentioned about the difference in some details of the Fataawa may be due to the difference of the questions of the questioners, as we answer each question according to its details.

In any case, the issue of dropshipping may be permissible and acceptable and it may not be so.

Among the permissible and acceptable cases where the owners of the sites display images of the goods while they do not own them are the following:

To sell by Salam Sale: In this sale the owner of the site agrees with the customer who demands the commodity to sell him a commodity with specific descriptions, which he receives from him at a specific time to which they both agree. This is exactly like what you mentioned in your question that the delivery date is determined; this is something required in the Salam Sale.

In a Salam Sale, it is also required that the buyer pays the price of the commodity directly in the meeting of the contract. Requesting the goods remain the liability of the owner of the site. Then the owner of the site shall request the described commodity from the factory or from its owner and buys it from him, and then asks him to ship it to the one who is buying it from his site directly, so that it can reach him at the appointed time that is agreed upon between both of them. This method is permissible. It exempts the owner of the site from the shipping fees, and it is also a way to avoid selling what one does not possess because it is not a sale of a particular commodity (which is physically present at the time of sale), but it is rather selling a described commodity, the description of which is based on the honesty of the seller (who is describing it). The conditioning of an appointed time is mandatory, such as determining a day for the delivery of the goods to the customer (the one who requested the commodity).

Ibn ‘Abbaas narrated that when the Prophet came to Madeenah, people were paying one, two and three years in advance for fruits, so he said: “ Whoever makes a Salam sale, let him do that with a known specified measure, a known specified weight, and appoint a known specified period (of time). ” [Al-Bukhaari and Muslim]

The second permissible method is: To inform the customer [who demands the commodity] that the site does not own the commodity displayed in the site, and that he (the owner of the site) will bring it to the customer from its owners. In this case, the owner of the site is only a broker and he is entitled to take a commission in return for the effort of bringing the commodity. In which case, he acts as an agent authorized by the customer who is demanding the commodity. Acting on behalf of someone else in return for a fee is permissible but he must determine his fee to the buyer. In this case as well, he will request the seller to ship the commodity directly to the customer.

The third permissible method for dropshipping in which the owner of the site does not bear the cost of the shipment, is when he is an agent for the owners of the commodity and he agrees with a factory or a given shop, to display the commodity on his site and sell it on their behalf, in return for a commission that is taken from the owner of the commodity. When the sale is concluded, he requests the owner of the commodity to ship it directly to the buyer.

In this last case, he [the owner of the site] conducts the sale contract directly with the customer because he is an agent for the owner of the commodity and acts as if he owns it.

Perhaps in these cases, there is a way out for the owners of sites to avoid selling what they do not possess, and at the same time get a certain profit.

For more benefit, please refer to Fataawa 27508 and 287650 .

Allah knows best.

Source: here

View Three: Shaykh Assim Al Hakeem

See here: https://www.youtube.com/watch?v=9BrIHPzPc64

View Four: Shaykh Muhammad Alshareef

See here: https://www.youtube.com/watch?v=y-pKWJtBKS0

View Five: IslamQA.org

1-Drop Shipping works in two different ways. The way expressed in the question is not clear. Hereunder are the two ways in which drop shipping is normally done.

Seller “A” advertises an item on the website such as e-bay. “A” does not have the item in his possession at the time of the advertisement. Purchaser “B” answers to this advertisement and places his order by paying the amount to “A”. Once “A” receives the order and payment into his account either via Paypal or a similar service, “A” further places an order to the wholesale merchant (drop shipper) “C” at a wholesale price. “C” then dispatches the merchandise to “B” while “A” keeps the difference of listed price and wholesale price as his profit.

This way of drop-shipping is not permissible since “A” is selling an item which is not in his possession.[1]

The shariah compliant alternative for this form of drop-shipping is to do the transaction through the model of “ Salam ”. In Salam after receiving the money, “A” (muslam ilayh) will purchase the item from the wholesaler “C” and then make “C” his agent to deliver the item to “B”. The process would remain same except for that the following information will have to be explicitly advertised.

  • Seller “A” would have to pronounce in his advertisement beforehand that he is not in possession of the item and will arrange its delivery once the rabbul maal “B” has paid the money.
  • Complete description of the item being sold will have to be advertised.
  • The time duration for delivery will have to be advertised.

Source: here

Mufti Billal Omarjee view

The conventional way of doing dropshipping is indeed not permissible. The alternative by far is the Salam method of trading.

The Maliki opinion seems to fit the conventional method of doing dropshipping. Which is to sell something before taking possession of the asset. However the issue remains that in order to sell this asset, the liability must have been at least transferred between the first sell and the first buyer. Once it is done then the first buyer can then sell the asset to a second buyer even though he has not taken possession of the asset before the sale. So for example: A who is in the UK, orders a mobile phone from B who is in China. A can sell the mobile to C who is based in the USA. A asks B to ship the mobile directly to C. In the Maliki school of jurisprudence this transaction would be valid provided that the liability for the mobile was transferred between A and B prior to A selling the mobile to C.

And Allah knows best!

The IFG view

The Islamweb fatwa give an excellent summary of the potential ways in which a transaction can be structured so as to make a dropshipping model work within the sharia frameworks. Using Islamic structures such as salam, murabaha and wakala (agency), an Islamic solution to each dropshipping business’s situation should be met.

Given the wide variety of dropshipping models, it is best to check in with a scholar before embarking on a novel dropshipping business structure, however there should usually be an easy way to structure things to make the business sharia-compliant.

Commercially, it strikes me that the easiest of these options is to clarify on your website that you use dropshipping. That clarifies to any buyer that this is the situation. Given most people do not read the legal terms and conditions anyway, we wouldn’t expect this to have any commercial impact.

Please also watch our detailed discussion of this whole area here:

2 Likes

Is drop servicing halal?? It is exactly the same as drop shipping but instead of shipping actual physical products,one may provide digital services in return of money i.e Graphic designing,Web development,Digital Marketing etc Like someone comes on my website and choose a service like social media marketing for his company (lets say for 400 dollars),then I will hire someone to do social media marketing for my client (lets say for 200 or 300 dollars) The difference in between these two transactions is my profit excluding the money I spent on advertisement.Its more of like of creating a company and let your employees do the work Please reply to my question.I did not find any sources about this. Please guide me

wasalam

May Allah bless you.

Drop servicing is a fairly new concept, therefore I will need to look at the specifics to express a general opinion. @Mufti_Faraz_Adam may have an opinion on this matter and @ibrahimkhan may have more information to provide on its structure.

However, for me, selling a service through ‘drop servicing’, would be a sub category of Ijarat Al Dhimmah. Dr Murad Haidar defines Ijrat Al Dhimmah as a 'forward sale of benefits in lieu of a spot payment"
Regarding Ijarat Al Dhimmah, the scholars of the different schools of jurisprudence differ regarding its permissibility. The majority of them allow such transaction whilst others are against it.
If drop servicing contract can be constructed in a way that it fulfil the conditions of Ijarat Al Dhimmah then it would be perfectly fine.
If you need to review a specific drop servicing contract for yourself then get in touch inshaAllah.

And Allah knows best!

Jzk khayr @Mufti_Billal.

My view is that this is more straightforward than the dropshipping case. Often servicing professions (law firms, consultancy, design etc.) will have a natural “drop-servicing” element built in. So a law firm might need to consult with a third-party external consultant on an aspect of a job they are working on and pay for that itself. That is equivalent to what’s happening here. A drop-servicer is usually not just a “letterbox” - they are also a quality control and client relationship person. So they are actually serving a real purpose in this transaction.

Also, from a wider perspective, larger business are constantly hiring new people to fulfil jobs they are quoting and pitching for.

Also, given the wider trend of zero-hour contracts, increasingly business will be going in this consultant-based direction rather than full-time employee.

So my personal view would be that drop-servicing is just another name for something very much permissible and part of the urf (custom) of our time and place.

Jzk Khayr @ibrahimkhan

I agree that drop servicing is very similar to outsourcing which in itself is another sub category of Ijarah Bil Dhimma.
However there are 2 issues here: one is the fiqh principles that govern this sort of transaction i.e. can payment be made before the work is being done like in the drop service scenario or does it have to be paid after like in an consultancy service for example. Based on this, you will find that some of this services are or are not shariah compliant even though they look similar in theory.
Second issue is, I don’t think the custom (urf) approach is always valid. For something to be accepted because of customary practise, it has to be in accordance with shariah first. There are jobs that might be part of custom within certain industries, however I do not feel they are shariah compliant.
For example the security industry: it is widely known that a huge amount of security firms outsource their service to others. However, this for me can reach the level of deception (ghash) in a contract. To put it in perspective, an organiser contracts a company to provide SIA guards for its concert venue. The company has advertised themselves as experts in the field employing highly trained officers. On the day of a concert, you will find untrained and inexperienced officers working in the area called “the pit” which is one of the most crucial area of the venue, it is the line of defence between the public, and the artist performing on stage. This for me is a deception. The organiser pays a huge amount of money relying on highly professional expertise. Instead, the security firm will pocket most of the money, employs cheap staff and eventually, undermines the security of the venue.

On top of that, there is a clear element of uncertainty (gharar) in this form of outsourcing. These officers sometimes don’t just come from the 2nd, but from the 3rd or even the 4th outsourced company down the line! So on the day itself, the first security company does not even know that they have staff that come from firms unknown to them. The result of this is, there are times that staff don’t get paid at all. Because one of the outsourced firm did not pass on the money somewhere down the line.
What I have just described is standard practised, some of these cases end up in court but not all. It is customary practise but I do not see it as valid from a shariah angle. Not mentioning that the contractor would not be happy if they knew that the work is being outsourced.

To finish, I will mention an anecdote of a Muslim SIA guard who went to work in a prestigious hotel that host VIPs and footballers including national teams. He became security supervisory of a team managing the bar. Later on after he left, he asked his employee for a reference regarding this position. The demand was rejected. Because, he came from an outsourced company that was not fully declared and who was paying him cash in hand.

Hence, the need to analyse the nature of the agreement in each of the working industries as opposed of having a general ruling. To have a general ruling would mean having parameters in place,where Muslims employers and employees can mean test if the job is halal or not.

And Allah knows best!

1 Like

Salam alaykum brother, i have a question regarding drop shipping initially if i place the products on my site but charge higher than originol price for me to make profit was they make payment i myself use my own funds to purchase products so that i own so i then ask the supplier to send it of to the customer would this be permissable

Wasalam

May Allah bless you.
When you buy the products with your own money you may gain ownership of the products but you also have to ensure that you take possession of the products before being able to resell. Possession can either be physical or constructive (i.e. you must have the right to access the products as you wish, and you must have full liability).
Please refer to the above fatwa from View 5 and the IFG View. It will give you an idea on how to structure your dropshipping model in a shariah compliant way. If you are ensure then let us know inshaAllah.

And Allah knows best!

salam mufti hope your ramadan is going well, and allah accepts all your duas in this blessed month!

So reading view (if am right) i can advertise item on my site with difference in price than supplier however will need to disclaim on site am the drop shipper and i don’t possess the items displayed on site.

would i also need to disclaim that am selling for higher price than original price?

Wa aleykum salam

Eid mubarak to you and your family.

That is right you just need to confirm that you are a dropshipper who does not currently own the item. You do not need to show the price for which you are purchasing the item from the supplier.

And Allah knows best!

Jzk kharun mufti

EID MUBARAK to you and your family !

may allah bless you and accept all you duas and fast during the month of ramadan.

salam alaykoum @Mufti_Billal , @Mufti_Faraz_Adam and all

i was doing dropshipping in another way where the buyer , the suppliers and me in the same country. and to solve the condition that i need to have the product to have the right to sell it , when the buyer see my advertase and visite my page and wanted to buy, he give his information and take the ordre without giving money to buy it . than i call him to confirm with him , after that i go to the supplier and i buy the product than i send it to the buyer and he pay it when he recieve the product.

i hope this suggestion can help to dévelope ideas where the dropshipping is structured with the shariah .

And Allah knows best!

Wasalam

May Allah bless you.

This method you have described is not shariah compliant. This sort of arrangement falls under the concept of bai’ al dayn bil dayn i.e. deferment of two countervalues.
One method that would work is, if the customer makes an enquiry about the product. You then ask her to wait for a period of time to confirm if you can make the product available. During that waiting period, you acquire the product, contact the customer, and then you make an agreement to sell it to her for an instant payment. However. you must bare the risk she might not want to buy the product anymore by that time.

Otherwise, please refer to the fatwas above for the Salam method of transaction.

And Allah knows best!

In regard to your question, when you say you take the order, are you considering this as a sale to the customer from yourself or simply as an order to source the item?

And when you purchase it from the supplier, who is considered the owner during that purchase and delivery?

alright i can see now the meaning . yes there is sometimes when the buyer cancel the ordre after that i purchased the product. thank you @Mufti_Billal

for the first question , i mean just as an order to source the iteam, the sale is done when the buyer get his product physically

the second one , when i do the purchase , i am the owner during the purchase and delivery .

thank you again

Mufti am really confused with the different conclusion could you please enlighten me on how could I do dropshiping in a halal way without contradicting the shariah .Thank you for all the content you spent on doing and may Allah reward you all.

@Mufti_Billal @Mufti_Faraz_Adam As-Salaam Alaikum wa rahmatullahi wa barakatuhu to all. I am a little late to this forum, have been seeing many fatwa and opinions on drop-shipping and if it is shariah compliant. After understanding the various positions, I have concluded with the following opinion. It is a little lengthy sorry about that, Would really appreciate your comment on it.

Please note that my recent eagerness to start a drop-shipping business might influence this opinion, so please correct me if I missed out something or added something unnecessary or misinterpreted something or made a wrong opinion. Nevertheless, I tried to keep my view Islamic and not influenced by my interests. May Allah guide us.

I have put the opinion with regards to salam transaction as it is the closest concept to the drop-shipping done today. There might be other ways like broker, or partnership but I did not study about them.

OPINION:
Requirements for understanding this opinion:
-To know what dropshipping is exactly, especially the way it is widely done today.
-To know the 2 hadiths that seem to cause contradictions- Jami’ At-Tirmidhi 1232 (1st Hadith) and Sahih Al-Bukhari 2239 (2nd Hadith)
-And most importantly, a god-fearing heart with clean niyyah.

The main concept causing contradiction in drop-shipping is ‘selling something you don’t own’. This concept is seen in the 2 hadiths mentioned above.
In complete watered-down form- 1st hadith doesn’t allow selling in advance what you don’t possess and 2nd Hadith does allow selling in advance even if you don’t possess it at the moment(with conditions). Since they seem to contradict, therefore, the context and reasoning of the hadiths should be understood to come to a conclusion.

For dropshipping to be halal, it should not come under the 1st hadith that says ‘don’t sell what you don’t possess’ and should come under the 2nd hadith of ‘salam transaction of the dates’. Both the conditions should be met.

The 1st hadith was given to not cause any ambiguity in the transaction which can put both the parties in unfavourable situations and can lead to a major dispute between them. And the 2nd hadith is because people are not allowed to take a loan, so this hadith stimulates business for the seller and also brings the product to the buyer, given that both agree to the strict conditions. Dropshipping should satisfy both the concept to be considered acceptable.

For the 1st hadith, the hadith is for when a seller first makes the sale of a product and after making the sale he goes to look how to get that product( in this case, a source to provide that product). This causes great ambiguity on whether he will even get it, will the price be as expected included shipping etc, will the quality be as expected, what is the description?, and most importantly when will he get the product(i.e. delivery date) because the seller might keep delaying the delivery until he gets a source who can give the product of good quality, good price etc.
But as for dropshipping, the seller 1st gets the source to provide the product with its description, price, quality and also when will it deliver. So this causes no ambiguity and it is like a normal sale, except that the product doesn’t belong to the seller. So will the seller be able to show someone else’s product for sale without knowing if the other person(Manufacturer) will even sell him or not? No, he cannot unless he is in agreement with the other person (Manufacturer) to show their products and sell, then he becomes like an authorised agent who is authorised by the manufacturer to sell their products (Basically, the seller needs to be certain that the product will be sold to him and cannot leave any space for doubt that whether he can buy it after selling it to the buyer). The fact that the manufacturer agrees to handle and deliver is part of the contract which doesn’t affect the hadith.

For the 2nd hadith, the dropshipping method should meet all the conditions of a ‘salam’ transaction, including adequate description(there should be no ambiguity or doubt), price and delivery date etc. The buyer should be told that they are entering a salam transaction wherein, in this case, the product is purchased after the buyer pays in full. The seller can then do a transaction with the manufacturer for that product.
The adequate description of the product to be shown on the seller’s website is his responsibility and he should confirm its accuracy.
The liability of the product is also going to be as per the transaction. Between the buyer and seller, the seller has full responsibility to bring the product to the buyer with agreed factors(like description, delivery date and measure/quantity etc). Between the seller and the manufacturer, the manufacturer has full responsibility to bring the product to wherever and whenever, as agreed by the parties(in this case it is the address of the buyer). If the product doesn’t reach the buyer or is not as its description, the seller is responsible to the buyer and should either arrange to send another product or refund the full price(whatever the buyer wishes). This responsibility should not be altered even if it is the manufacturer’s fault and whether or not the manufacturer refunds the seller. Similarly, b/w the manufacturer and the seller, the manufacturer is responsible to the seller and should replace or refund the product if such an issue happens (seller can decide which one he wants). The validity of liability on the 2 transactions is independent of each other.

Dropshipping agrees with both hadiths and satisfies its reasoning and requirements. With this, the niyyah of the seller should be clean as well and strictly follow the requirements and not look to deceit the buyer or find loopholes in the transaction to make extra money.
And Allah knows the best.

As much as I have seen, according to me, the opinions that are against drop-shipping, like that of Sh. Assim Al-Hakeem, seem to be concluded without completely looking at all different aspects and focusing strictly only on the 1st hadith. This could be because sheikh answered it live and sheikh was continuously answering questions on other topics which gave less time for this, particularly new topic.
Allah knows the best, may he guide us all. JazakAllah

Assalaamu alaykum, the following is the simple solution for dropshipping which can work:

1.Sell as Salam agreement with customer. This means you take payment in full from customer to supply an item you currently don’t own.

2.Thereafter, you go and purchase item from supplier in a normal transaction by paying.

3.You take responsibility for shipping so the Shariah requirement for possession is fulfilled.

  1. You take responsibility for Item to be sent directly to customer.
1 Like

Sh. Joe Bradford’s view on dropshipping: https://www.joebradford.net/isnt-drop-shipping-haram-no-and-heres-why/

When discussing any business model, it’s important to drill down on the mechanics of each deal and understand how it differs compared to similar businesses and methods of selling.

So what is drop shipping?

Drop shipping is a supply chain management technique in which the retailer does not keep goods in stock but instead transfers customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.

To understand drop shipping, we have to understand how the products we are selling are being sold and what form of protections are built into the sale for the consumer. When we sell an item we can either sell a fungible, unspecified item or a specified, unique item. Details below.

1- Selling an item by description:

This is an item which I have access to and the ability to buy one of its type to then sell. Example: I am selling unlocked samsung S4 phones. You will be provided with an unlocked samsung S4 phone with the color you choose. The serial number will not be the same as the one displayed, but the description will be the same or you will be refunded. Ruling: This is permitted, and is similar to Salam. There are conditions for this to be valid and drop shipping fulfills this for the most part (there may be specifics mentioned elsewhere that are different and change the ruling.) The item is sold before it even exists, but it is sold with a specific description (an unlocked S4 on any color) along with an explicit refund guarantee if the description is different or the item is not deliverable. The size, weight, color, quality, and any other distinguishing characteristic that will affect price must be stated at contract for this to be valid.

2- Selling an specific particular item, with particular characteristics:

This is what the questioner mentioned in the link you provided. For example, I go to Ebay, see a specific s4 phone for sale. I then go to Amazon and list that s4 as my own and that it is for sale. When my customer purchases it, I go back to Ebay and purchase the phone. What happens if it is sold before I get back? or the auction price is higher than my margin? or it is removed from the site? What about if the phone is locked instead of unlocked? or it is blue when I sold it as red? Or it is refurbished when I sold it as new? I’ve sold a specific thing that I did not own, nor was I able to reasonably obtain due to its description.

It is the exact same thing that Hakim ibn Hizam said to the Prophet. He would go to the market, scout a specific product, then sell it. He would then go and buy it, but if it had already sold then he would have disputes with his customer. the Prophet told him “Do not sell what you do not own” in another narration “Do not sell what is not with you.” To reconcile this hadith to the permissibility of Salam, we have to look at the differences between the two. In #1 above, the item is being sold according to its description along with a explicit refund guarantee if unavailable. In #2, a specific item is being sold as final. If that item is unattainable, then this will cause dispute, which is why this sale is impermissible.

To sum up, #1 above is permitted. You can sell items before you own them as long as you are not selling a unique, specific item and as long as you have the ability to access and deliver that unspecified item you are selling by description in a timely fashion and will refund the sales price if you aren’t able to.