Dropshipping: Is This “Easy Money” Halal?

“When your earning comes from Halal source, even a minimum wage will be sufficient to live a good life, but when your money comes from Haram source, it will always feel as if it is never enough, even if you are making millions.”

“When your earning comes from Halal source, even a minimum wage will be sufficient to live a good life, but when your money comes from Haram source, it will always feel as if it is never enough, even if you are making millions.”

In a world of consumerism and increased globalisation, it is no surprise to see the meteoric rise of dropshipping.

All over social media, there are “gurus” who claim to have made millions of dollars from dropshipping – making it sound like it is easy money. But is this “easy money” halal?

To understand why this question is even being asked we must first discover what exactly dropshipping is and where potential problems may emerge.

What’s all the fuss about

If you search on Google what is dropshipping you will get the following definition: Dropshipping is an order fulfilment method that does not require a business to keep products in stock. Instead, the store sells the product, and passes on the sales order to a third-party supplier, who then ships the order to the customer.

In practice, you will have a page on Shopify where you will be listing whatever is best-selling on their website. Let’s say for example it is back-to-school season and you know backpacks are going to sell well, you create a listing for backpacks.

Knowing that this market is very niche, you can put high prices on unique styles to maximise margins. Once someone purchases the backpack on your listing you will then forward the order (sometimes automatically it will be forwarded) to the supplier who will then ship it out to the customer.

It’s relatively low risk as if a product doesn’t sell, you don’t have a warehouse full of products and requires little investment as you don’t need to hold any stock. It really is “easy money” but there is a hitch.

The problem

With regards to Sharia law, there are multiple non-compliances when it comes to the traditional method of dropshipping.

On the first level, the dropshipper doesn’t actually own the items; it is the manufacturer who owns these items and sells them to the final consumer. There is no point in the process where the ownership and the possession of the goods passes from the manufacturer to the dropshipper.

In Sharia, it isn’t permissible to sell something that you don’t own. Justifications have been made for dropshipping with the salam contract, where the seller can sell goods that he or she does not own, but even then, the ownership and possession of the goods must first pass on to the dropshipper before passing on to the final customer.

On the second level, the dropshipper takes no risk of the item with all responsibility, liability, and risk of the asset being with the manufacturer until it reaches the final customer; this also is non-compliant with a salam contract which states the seller must have either physical possession of his/her product or possession of the liabilities that are associated with it.

Furthermore, the constantly changing trends mean that any listing can be taken down at any time by the dropshipper – which means a salam contract is impossible as the contract must be definite without an option to rescind. 

Interestingly, Grand Ayatollah Sistani’s opinion on dropshipping is that you should follow another Mujtahid and whilst some mujtahids allow for dropshipping with the salam contract, Mufti Faraz Adam’s article demonstrates that even the salam contract isn’t viable with the traditional method of dropshipping.

Is there a solution?

As established the traditional method of dropshipping is completely non-compliant with Sharia law however, there are methods to tap into the growing market in a halal way.

The first way is where you aren’t dropshipping a particular commodity, rather a personalised commodity. So for example a customer wants a backpack with their name on it, the dropshipper once getting a sale will request the described product from the manufacturer and will buy it from him/her, and then will ask them to ship it to the final customer. This avoids selling something that isn’t in possession of the dropshipper as the product isn’t actually physically present at the time of sale but will be made by the description of the customer.

In most cases, the manufacturer and final customer are unfamiliar of each other, so through honesty is also where dropshipping can become permissible. The dropshipper can inform the customer that he/she doesn’t own the commodity displayed in the listing and that he/she will bring it to the customer from its owners.

In this case, the dropshipper is a broker and is taking a commission in return for bringing the product to the customer. The dropshipper can also act as an agent for the manufacturer, agreeing with them to display their product on his/her site and sell it on their behalf, in return for commission rather like a car salesman. 

Dropshipping will remain a fast-growing industry with some forecasts reporting a compound annual growth rate of 29% until 2025. Whilst the traditional method of dropshipping remains completely non-compliant with Sharia law even when a contract of salam is used, there are other alternative ways to dropship in a halal way.

May Allah keep us on His straight path.

Quote source from excerpt found here.

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