Title

Can I buy goods on consignment and can I buy goods on credit if there is no interest involved?

Question

Asalam Walikum,

I run a pharmacy. I need to know the legality of certain transactions:

1) We buy goods from the seller on consignment on the condition that if we are able to sell that product we will make the payment otherwise we will return the product.

2) We buy products from suppliers to make payment on a later date. Essentially it is buying on credit with no interest payments. Is this allowed?

Jazak Allah for your support.

Answer

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

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

1. According to Shariah, when one purchases an item, the purchaser becomes the sole owner of the item and he assumes all risks related to the item. The seller is absolved of any risks attached to the sold item. In the inquired case, it is not permissible to purchase goods with the condition to return the goods if they cannot be sold. The sale of such goods will be invalid.[i]

An alternative to this would be to agree on a mudaraba contract with the supplier. Your supplier will provide you the goods to sell in lieu of an agreed percentage of the profit. If you sell the product you would take your profit. If not you will return the goods to the supplier. The profit can be any percentage that is mutually agreed upon between you and the seller of the product. Since the supplier's main purpose is to receive the cost of his products, he can agree on a very small percentage of the profit. [ii]

Below are two examples that highlight the difference between the valid and invalid transactions:

Example of an invalid transaction: In a consignment sale, your supplier sells you product “A” for $5.00 which you agree to buy if you can sell it. You sell it for $10.00 and pocket the $5.00 profit, while paying your supplier $5.00. This is an invalid transaction since you have insisted on a right to return in case the product does not sell.

Example of a valid transaction: In a mudaraba, you do not agree to buy the product. Rather your supplier supplies you the product “A” whose value is $5.00 under a profit-sharing agreement. As stated earlier, since the supplier primarily wants just the cost of his product, he should readily agree for you to get the vast majority of the profit, for example 99%. Any percentage is permissible.

If you sell product “A” for $10.00, you will pay the supplier the cost of his product back: $5.00 and his 1% profit, which in this example would be $0.05 for a total of $5.05. You will keep 99% of the profit which will be $4.95. This transaction will be valid.

If you do not sell the product you will simply be able to return the product to your supplier since you are selling on his behalf and not agreeing to purchase it.

2. Yes, it is permissible to buy on credit as long as no interest is charged and the time limit fixed for repayment is known. [iii] [iv]

And Allah Ta’āla Knows Best

Sohail ibn Arif,
Student Darul Iftaa
Chicago, USA

Checked and Approved by,
Mufti Ebrahim Desai.

وكل شرط لا يقتضيه العقد وفيه منفعة لأحد المتعاقدين أو للمعقود عليه وهو من أهل الاستحقاق يفسده [i]

 العناية شرح الهداية، كتاب البيوع، ٦/ ٤٤٢ دار الفكر

فتاوى عثماني،كتاب الشركة والمضاربة، ٣/ ٣٨ - ٣٩ مكتبة معارف القران كراتشي [ii]

والبيع بالثمن الحال والمؤجل جائز) لإطلاق قوله تعالى {وأحل الله البيع} [البقرة: ٢٧٥] ولما روي «أنه - صلى الله عليه وسلم  - اشترى) [iii]

 من يهودي طعاما إلى أجل ورهنه درعه» لكن لا بد وأن يكون الأجل معلوما لئلا يفضي إلى ما يمنع الواجب بالعقد وهو التسليم والتسلم، فربما يطالب البائع في مدة قريبة والمشتري يؤخر إلى بعيدها.

العناية شرح الهداية، كتاب البيوع، ٦/ ٢٦٢ دار الفكر

آب كي مسائل أور أن كا حل، ٦/ ٧١-٧٤ [iv]