Isn’t Drop Shipping Haram? No, and here’s why

https://upload.wikimedia.org/wikipedia/commons/7/7d/Drop-Shipping.png

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.

About Joe Bradford

About Joe Bradford

Joe is a structuring advisor for a major real estate development firm, specializing in Shariah compliant investment vehicles. He runs a financial advisory. He is the founder of Muslim Money Guide and also blogs at joebradford.net.

Want the latest and greatest updates from Muslim Money Guide?

Subscribe to our mailing list below. You'll get:

  • Latest Articles

  • Video and Podcasts

  • Whitepapers and Research

Your Email Address: