Sale of Goods Not Yet Owned in Imam al-Shāfi‘ī’s Al-Umm and Its Relevance to Stock Short Selling

Abstract

Stock short selling raises a fundamental issue in Islamic commercial law because an investor sells shares that are not yet owned at the time of the transaction. This study aims to analyze Imam al-Shāfi‘i’s view in Al-Umm concerning the sale of goods not yet owned (bay‘ mā laysa ‘indaka) and to assess its relevance to naked short selling and covered short selling in contemporary capital markets. This normative library research employs textual, conceptual, and comparative approaches. Primary materials consist of Al-Umm, relevant Prophetic traditions, and authoritative works of Shāfi‘i jurisprudence, while secondary materials include contemporary Islamic finance scholarship, capital-market regulations, and fatwas of the National Sharia Council of the Indonesian Ulema Council. The materials are examined through qualitative content analysis and legal reasoning by relating the concepts of ownership (al-milk), possession (al-qabd), deliverability, gharar, and prevention of harm to the operational mechanism of short selling. The study finds that Imam al-Shāfi‘i considers a sale invalid when the seller lacks ownership or effective control over the object and cannot ensure its delivery. Accordingly, naked short selling is clearly incompatible with these requirements. Covered short selling reduces settlement risk through securities borrowing, but remains problematic under the strict Shāfi‘i framework because borrowing does not necessarily establish perfect ownership before sale. These findings support the prohibition contained in DSN-MUI Fatwa No. 80/2011 and demonstrate the continuing relevance of classical jurisprudence for assessing innovative capital-market transactions.