by M. Omar Baig
Islamic Finance
Principles and
Applications
of Islamic Finance
Principle #1: It is only permitted to
sell a specific item if it is under one’s
ownership.
Scenario: Zayd runs a used car dealership.
He finds a used Tesla Model 3
on sale for $ 35,000 which he plans to
buy. However, before completing the
sale he lists the Tesla on his website
for $40,000 and sells it.
Ruling: Impermissible
Explanation: There are two types
of items a person can sell: a specific
item or a generic item. Specific items
are those items which are not interchangeable
(i.e. the specific product
advertised is expected in the sale, not
any other similar item). For example,
when a person lists a used car for
sale and post pictures of it, the buyer
expects to receive the actual car in
the pictures and not another car of a
similar make.
Generic items are those in which the
specific product being advertised is
not expected, rather it would be interchangeable
with any item with similar
specifications. Such items are usually
easily available in the marketplace.
For example, a person advertises a
brand-new iPhone 12 for sale. The
buyer does not expect the specific
iPhone pictured online to be sold to
him, rather any brand-new iPhone 12
would suffice.
The requirement of ownership before
selling is applicable to the sale of
specific items as described above. As
for generic items, it is permissible to
sell such items even if one does not
yet own it, provided there is absolutely
no ambiguity in the specifications
of the product being sold and the
payment is not deferred. It is also important
to note that it would be necessary
for the seller to eventually take
possession of the item before passing
it on to the buyer.
Proof: Hakim ibn Hizam g narrates
that the messenger of Allah s told
him, “Do not sell something which
you do not own” (Tirmizi).
‘Abdullah bin ‘Abbas k narrates
that when the Messenger of Allah s
arrived in Madina, people would do
pre-paid sales for dates which would
be delivered after one or two years
(after fully harvesting). The Messenger
of Allah s said, “Whosoever does
a pre-paid sale should ensure that the
weight, volume, and time of delivery
has been specified” (Bukhari).
Practical applications: Many contemporary
jurists have deemed short-selling
stocks impermissible due to one
selling shares he/she does not own.
Principle #2: Before selling an item,
it is necessary for the seller to take
possession over it.
Scenario: Zaynab started her own
bookselling business on Amazon.
However, she does not want to hold a
large inventory due to costly storage
expenses and a business-risk if the
inventory does not sell as planned.
Therefore, she takes orders from
customers and has her supplier ship
directly to the consumer.
Ruling: Impermissible
Explanation: Along with ownership,
another condition of selling a product
is possession. Although in many
instances ownership and possession
take place simultaneously, both are
distinct and may not occur together.
Ownership refers to the process of
becoming the legal owner of an item
through a transaction. Possession
refers to the transfer of risk and liability
of the item to the new owner.
For example, Ali orders a fridge from
Costco which will be delivered in two
weeks. Immediately upon placing the
order and subsequent payment to
Costco, Ali is the owner of the fridge.
However, until Costco delivers the
fridge to Ali, the risk and liability of
the product has not been transferred.
It is for this reason that if the fridge is
damaged or stolen during transport,
Costco and not Ali would be responsible
for all damages. Conversely, after
delivery Ali would be liable for any
damages to the fridge, and he can no
longer hold Costco liable.
In most items, it is easy to assess when
possession takes place as it would be
when the person physically takes the
item. However, there are many items
in which physical possession may
not be possible. Think land, buildings,
intellectual property etc. The
22 September – October 2021 | AL-MADINAH