Concept of Dropship

The advancement of the internet in the globalisation period has changed the way individuals
do business from a traditional to an online environment. The internet has ushered in a
commercial revolution by offering customers new ways to shop, which has evolved into an
online business (Xing, Grant, Mckinnon, and Fernie, 2011). As a result, online business has
become a part of people’s daily life (Salifu, 2008) people can buy and sell a variety of items
and products through the internet, for instance, through websites, social media and many
more. In this country, the internet era began in 1995, and it has changed people's lives and the
way businesses conduct business (Mansoori, Liat and Shan, 2012). People use the internet for
a variety of reasons, including information collecting, communication, education and
entertainment. Furthermore, being one of the commercial and marketing tools that cannot be
avoided, the internet becomes a source of revenue for people. The internet also aids business
owners in gaining more clients and revenue. (Jahari et al, 2016)

Online banking, electronic government (e-government), online buying and online

dropship transactions are only a few examples of online business transactions these days ( Sin
Tan, Chong and Lin, 2013). The dropship agent assumes ownership and control of products
from the product owner in an online dropship transaction (Hagiu and Wright, 2014). A
customer pays a dropship agent for the item that they wish to buy from an online transaction.
The agent will pay a specified sum to the product’s owner based on each other's agreement.
Customer’s information is also transmitted to the owner, and the owner will then mail the
merchandise to the consumer. Although the ownership of the merchandise to the client, the
address that has stated in the mail will be dropship agent’s name. The dropship agent will
receive a fee or profit as a reward for selling the items of the product and reach the target
sales on the behalf of the business’s method. (Jahari et al, 2016)

An agent promotes the owner’s merchandise with a digital image in an online

dropship transaction. The agent exclusively deals on behalf of the owner via a digital image
that is published on his or her social network (Hazwan, 2014). The reason is that if the
physical product is not in the agent’s hands during the transaction period, the problem of the
product being pushed by the agent can be raised. In general, Islamm promotes trade and
business (Abu-Tapanjeh, 2009) Although people conduct business online, it should be done
in accordance with Shariah and should not include any prohibited aspects such as interest
(Riba), uncertainty (Gharar). However, in the case of an online dropship transaction, the issue
raises the question of whether, for instance, a transaction is permissible even if the agent does
not hold the merchandise of the online business. (Jahari et al, 2016)

According to Ghazali (2011), Muslim clients are becoming more conscious of the
Shariah issue when it comes to internet transactions. In this situation, it looks like the
acceptability of online transactions in the context of Shariah (Islamic contract law) and
concluded that as long as the online business transaction adheres to Shariah’s general
principles and essential requirements, it is permissible in terms of Shariah. (Jahari et al, 2016)

The growth of online commercial transactions has been aided by advances in

information technology and commerce. There are numerous advantages to starting a business
online. The reason is because it is convenient and saves lots of time, in terms of internet
commerce is one way of doing business where consumers and sellers are not affected by
time, place or distance (Huseynov and Yildrim, 2014). In addition, online business has
become one of the ways of doing business as a result of the benefits received, and being a
dropship agent is one of the useful ways in order to become involved in an online company.
Other than that, it is easier to gain more customers through social media platforms,
advertisement boards and posters. These days, people use the internet and technology as the
main source to look and check the latest news or trending items that can be bought by people
to use it for useful things. (Jahari et al, 2016)

Dropshipping is the practice of a merchant selling things that are not kept in stock by
the dropshipper. Instead, the dropshipper sells the product and has it shipped directly to the
client by utilising the item’s availability for sale from a third party (maker). The store is
relieved of the costs and difficulties associated with production and distribution, allowing
them to focus more on marketing techniques that ensure increased customer acquisition (Yu
et al. 2008). It’s crucial to remember that the traditional supply chain includes the
manufacturer, wholesalers, retailers and customers. The dropshipping method demonstrates
that the merchant sees or handles the product to verify the purchase-sales agreement is
agreed-upon conditions and terms. The primary difference between dropshipping and
traditional retail is that the dropshipper does not hold stock or inventory. Instead, the
dropshipper buys merchandise from a third-party with the intention of shipping straight to the
end customers (Yu et al, 2017). (Renaldi, 2020)
 The word “dropship” refers to the fact that the dropship agent does not physically see,
pack or ship the product to the buyer; this is done by the product’s owner (Hazwan, 2014;
Sarwat, 2013). According to Indonesian Syariah Advisory (2012), all a dropship agent
requires is internet connectivity and the ability to promote the owner’s product online. The
agent sells a product on behalf of the owner in a dropship transaction, but the goods are not
physically held by the agent. There is no requirement for financing, and the agent only
requires a phone or computer with internet access to advertise the owner’s product on the
internet and in the social media platform. There are three parties engaged in a dropship
transaction; the product owner, the dropship agent, and the customer. The entire procedure is
broken down into five steps. The five steps are:-

First step is for the product owner and dropship agent to come to an agreement. When the
agent agrees to become the owner’s agent in promoting the owner’s product, the dropship
transaction begins (Lieber and Syverson, 2011). The owner and the dropship agent should
have an online conversation or a face to face meet up if both parties have enough time to
make up discussion. Once all of the terms and conditions have been agreed upon, the agent
becomes the official dropship agent for the product owner. The owner of the product
occasionally sends the dropship agent a digital image of the product to promote to the
customers in the social media or through advertisement board. (Jahari et al, 2016)

Second step is for the product distribution. This explains when the owner sends the digital
image, he or she also includes product information such as size, material and price. After
receiving it, the agent would publicise the product through social media platforms such as
Facebook, Instagram, Whatsapp and Twitter (Hazwan, 2014). The pricing includes the fees or
profit for both parties when the dropship agency promotes the product (Sarwat, 2013).

Third step is where the customer transaction and dropship agent. If a consumer is interested
in purchasing a product, he or she will contact the dropship agent directly to inquire about
availability. In addition, the dropship agent will contact the owner and inform the potential
customer once the product is available. The dropship agent will deliver the payment
information once the consumer has agreed to buy the merchandise. The consumer will pay
the dropship agency the total amount, including postage (Islam web, 2014). The customer
will provide the payment details to the dropship agent once the payment is completed. (Jahari
et al, 2016)

The fourth step is the payment to the product owner. The dropship agent will pay the product
owner the agreed-upon amount (Indonesian Syariah Advisory, 2012). The agent will also
provide the customer’s information, such as name, address, and phone number to the owner
for mailing purposes. On the other hand, they get to send the items to the buyer as soon as
possible according to the buyer's request.(Jahari et al, 2016)

The last step is packing and shipping. The merchandise will be packaged by the owner and
then mailed to the client. Although the owner sends the merchandise to the client, the
dropship agent’s name appears on the letter.(Jahari et al, 2016)

In the entire supply chain space, the drop shipping mechanism has four cardinal points
to complete its operating procedures. In general, individuals or businesses interested in drop
shipping must create an online seller account with one of the major online marketplaces, such
as Shopee, Lazada, amazon and many more. These online businesses are considered the
owner of the advertising platform where retailers can market and sell their products in this
condition. The terms of the chosen online platform must be followed by every registered
retailer. Secondly, the shop must locate competitive dropshipping firms that are efficient and
effective in their numerous product categories (Zorzini, 2018). The reason is because the
retailer will have to rely on the information provided without physical evidence, the
dropshipper’s catalogue, select the product that they want to sell, and upload the identified
items to the platform where buyers may place the orders (Zorzini, 2018). It is vital to know
that the most appealing items for sale on internet platforms are those that are inexpensive and
reliable. Customers who shop online are frequently aware of the value of the items and
services they purchase. In an online company, the drop shipper who will ensure that the
goods are properly sent and delivered is just as crucial as the price. (Busari et al, 2020)
Shariah Issues Regarding Business and Trading in Dropship

The shariah law is intended to regulate humanity’s concerns while also protecting the
entire ecology. The essential premise of Islamic commercial transactions is that all business
activities are lawful unless there is a clause or circumstance that makes them illegal. (Busari
et al, 2020)

Dropshipping is a modern transaction in which the merchant does not hold stock but
instead purchases from a third party on behalf of the consumer and ships the item directly to
the client. In general, end customers may believe that retailers own the products since they
located the items on the retailer’s virtual desk, which gives the sense of availability and rapid
delivery (Ramanlal and Grover, 1999) In most situations, however, the retailer had no
personal interaction with the items or the producer. This raises certain shariah concerns,
particularly the notion that sellers must have ownership of the items before transferring title
to a third party. As a result, the goal of this research is to clarify the shariah concerns that
arise in the drop shipping cycle and to propose legal adoption based on Islamic core
principles and maxims. (Busari et al, 2020)

The first jurisprudence question pertaining to dropship from a Shariah perspective

concerns product delivery based on consumer descriptions. The delivered goods must be in
the exact shape, size and colour that the consumer specified when placing the order on the
dropshipper site. It must also meet the customer’s quantity requirements. Other than that,
ordering and delivering goods in a supply chain transaction must not infringe on the rights of
the parties involved. Secondly, the selling of anything you do not own is a major concern in
Islamic law, as stated in the prophet’s tradition: “It is forbidden to sell something you do not
own.” In the Quran has stated about the consequences and stated the reason of not doing the
bad things in business: (Busari et al, 2020)
Oh believer, Do not devour one another’s wealth illegally but rather trade by mutual
consent. And do not kill each other or yourselves. Surely Allah is merciful to you. (Surah An-
Nisa, 29)
 In this circumstance, one question is whether a dropshipping merchant can be
considered a middleman wholesaler or retailer, or an agent arranging the transfer of products
between two parties. One of the main concerns of the Shariah compliance principle is the
avoidance of situations and provisions that could lead to a disagreement between the
contracting parties. Shariah law strives to clarify the sold item, ownership of the goods, and
who bears the weight of liability in the event of contract default or breach. Despite the fact
that the prophet’s (PBUH) tradition states. “Do not sell what you do not own” (Abi Dawud,
no, 1318 1999). “When the Prophet came to Medina, the people used to pay in advance the
price of dates to be delivered within two or three years,” Ibn Abbas related. “Whoever pays
the price of a thing to be provided later in advance should pay it for a given measure at a
specified weight for a specified term,” he stated to them. In addition, Ibn Abas’ narrative
shows that there is an exception to the general rule that can be used with the Salam contract
(forward sale). In a Salam contract, the merchant agrees to provide particular goods to the
consumer at a later period in exchange for a completely paid advance fee. The item is paid for
in cash, and the vendor will deliver it soon. When he witnessed many farmers employing this
style of finance to fund their job, the prophet (peace and blessings be upon him) made an
exception for it. (Busari et al, 2020)

In general, dropshipping is one of the most recent and long-lasting disruptions to the e-
commerce industry with advantages across the board. As a result, the goal of this research is
to explain thee potential shariah compliant model for dropshipping activities this is in
keeping with the fact that, according to the maqasid shariah, Islamic law extols efforts to
correct flaws in meritorious cause and place them in their proper context (Al-Sayyid, 2004).
The goal of the Shariah is to make juristic adaptations of the existing structure to make it
shariah compatible and preserve the entire dropshipping cycle, rather than to condemn the
current practice. On the other hand, the wakalah (agency contract) and parallel salam (parallel
forward contract) models are two Islamic financial contracts that a dropshipper or merchant
in the dropshipping cycle can explore to verify that the product and services are shariah
compliant. The next paragraph explains the two Islamic contracts and their legal applicability
to dropship it in the country or worldwide shipping. (Busari et al, 2020)
References

Busari, S. A., Aminu, S. O., & Zakariyyah, H. (2020, November). Drop shipping in the
supply chain: fiqh perspective. In International Conference on Business and Technology (pp.
629-644). Springer, Cham.
https://www.researchgate.net/profile/Habeebullah-Zakariyah-2/publication/
350015742_Drop_Shipping_in_the_Supply_Chain_Fiqh_Perspective/links/
60644a8fa6fdccbfea1aad5a/Drop-Shipping-in-the-Supply-Chain-Fiqh-Perspective.pdf

Jahari, N. A., & Al-Aidaros, A. H. (2016). Online dropship for business transaction in
Malaysia: views from Muslim scholars. International Journal of Islamic Business (IJIB),
1(1), 13-28.
https://repo.uum.edu.my/id/eprint/21080/1/IJIB%2011(2016)%2013-28.pdf

Renaldi, F., Saepuloh, R. M., Maulidin, A. J., & Bon, A. T. Increasing Sales Online Through
Integration Of Dropshipping System And Social Media.
http://www.ieomsociety.org/harare2020/papers/456.pdf