How can my business of buying and selling books be Shari’ah Compliant?

Question:

asalaamu alaikum wa rahmatullah
Ibrahim is a bookseller in London. He buys his books from a local Egyptian named Ismail residing in London.  Ismail in turn buys the books from Cairo Publishers.
Whenever Ibrahim needs a new range of books for his store, he visits Ismail with a list. Ismail then contacts Cairo Publishers to obtain a list of Prices.
Ismail then negotiates and agrees a price with Ibrahim for the book list (specified by Ibrahim) at a price that is higher than what the Cairo Publishers agree with Ismail i.e. Ismail agrees to sell/supply Ibrahim with his required list at a price that includes a profit/commission. (Ibrahim does not have any contact with Cairo Publishers.)
So 2 sorts of agreement exist, a Price that Ismail will pay Cairo Publishers, and a second agreement whereby Ismail will sell to Ibrahim.
Usually Ismail and Ibrahim draw up an agreement and Ibrahim usually begins paying the money for the goods.  Upon paying for the goods, Ismail then sends an amount to Cairo Stockists who then in turn send all items to Ismail.
Ismail often takes possession and immediately has them delivered to Ibrahim, and at other times he has them sent direct to Ibrahim without taking possession.
eg, Ibrahim requires ten books on a list, Ismail checks with his contacts in Cairo and then says he can supply Ibrahim from his Egyptian contacts/publishers for $300.
Ibrahim and Ismail agree a price of $300 and Ibrahim gives him the Money.
Ismail says he will have them delivered to Ibrahim within 6 weeks. (Ismail actually buys the books for $200 from his Cairo Publishing Contacts and has them sent to him or sent to Ibrahim direct. Ismail makes $100 by doing all the negotiations/legwork in between)
1)Is Ismail allowed to contract specified books to Ibrahim before he even possesses them and owns them?
2) In what way can this transaction be made fully lawful so that both Ibrahim and Ismail can continue trading in a similar manner?

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

One of the principles of Islamic Finance is that it is not permissible to sell an item before taking possession of an item.[1]  However, there are two models wherein a commodity can be sold before taking possession:

1)    Salam (Pre-paid) Transaction

2)    Istiṣnā` (Manufacturing) Transaction

If the agreement between Ibrahim and Ismail is structured according to a Salam transaction, it will be Sharī`ah compliant and permissible.  Salam is a sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advanced price fully paid on spot.

The permissibility of Salam is an exception to the general rule that prohibits forward sales, and therefore is subject to some strict conditions. These conditions are summarised below:

1. Full payment of the price should be made at the time of concluding the agreement.
2. Salam contracts are permitted for fungible goods which do not differ in any significant manner.
3. Salam contract cannot be used to purchase a particular commodity like “this car”.  A Salam contract may be used for all generic items which are made to standardised specifications.
4. The specifications of the commodity must be clearly explained in a manner that eliminates any possibility of uncertainty.
5. The date and place of delivery of the commodities must be stipulated.  The seller in such a scenario may set a maximum date where he will be certain of receipt of the commodities from Cairo.  In the event of receiving the goods early, the delivery of the goods may take place before the designated date.
6. It is necessary that the commodity remains available in the market right from the day of contract up to the date of delivery.

If your agreement is structured according to the above framework, it will be Sharī`ah compliant.
It must be remembered that Ismail must take possession of the goods before handing them over to Ibrahim.  The goods must not be drop-shipped directly from the wholesaler to Ibrahim without Ismail taking any form of constructive possession and risk of the goods.[2]

And Allah Ta’ālā Knows Best

Mufti Faraz Adam
www.darulfiqh.com