Wakalah

wakalah

Wakalah

Overview:

Meaning

Permissibility

Types

Important Principles

Mechanism

Application

Differences and similarity between wakalah and Mudarabah

Meaning

The word “wakalah” has literally several meanings including looking after, delegation, authorization, preservation and performing a task on behalf of other. Wakalah is a contract of agency where a person (the principal) appoints another person (the agent) to do a certain well-defined tasks on behalf of him for a specified fee or commission. In wakalah, the principal does not have the time, knowledge or expertise to execute the work himself. The principal is known as muwakkil and the agent is known as wakil.

Permissibility of wakalah

“…So send one of you with this silver coin of yours to the town, and let him find out which is the good lawful food, and bring some of that to you”

(Al Quran 18:19).

Narrated by Jabir ibn Abdullah (May Allah be pleased with him): I intended to go (on expedition) to Khaybar. So I came to the Holy Prophet (Peace be upon Him), greeted him and said: I intend to go to Khaybar. He said: When you come to my agent, you should take from him fifteen Wasqs (of dates). If he asks you for a sign, then place your hand on his collar-bone.  (Abudawud, Book 24, Hadith 3625).

Types of wakalah contracts:

  • Wakalahh bil khusoomah: Agency for taking up disputes or legal cases.
  • Wakalahh bi taqadhi al-Dayn: Agency for receiving debt.
  • Wakalahh bi qabdh al-Dayn: Agency for taking possession of debt.
  • Wakalahh bil shira’: Agency for undertaking purchase.
  • Wakalahh bil ba’i: Agency for undertaking sale

Important principles

  • The principle and agent should possess the legal capacity to enter into a contract. The parties involved must be competent to enter into contract. They must not be minor or of unsound mind.
  • Wakalah is prohibited in activities which are against Shari´ah such as theft, conducting Riba-based business etc.
  • The subject matter of agency should be known to the agent and owned by the principal. It should be known to the agent and should be owned by the principal and can be disposed of through the agency.
  • Normally, the agency contract concludes on the fulfillment of the agent’s duties or on the expiry of the fixed period of Wakalah. But, an agency contract also expires at the death of principle or agent or if anyone of them loses legal capacity.
  • In the classical books of fiqh, the remuneration of the agent can be fixed, lump-sum or on commission basis.
  • The quality and other necessary attributes of the commodity should be clearly mentioned.
  • Wakalah is a non-binding contract. The agent or the principal may terminate the contract at any time but by mutual agreement.
  • In the case of Wakalah of sales, the principal appoints an agent to sell a certain property on his behalf. The agent is accountable for making payment and receiving good. He possesses the authority for claiming the price and all rights and liabilities associated with sale transactions.
  • An agent appointed to do buying and selling activities or to pay and receive a debt on behalf of principle is considered to be a custodian of his property and considered a trustee. In the absence of instructions, an agent can sell them for cash or on credit.

Mechanism of a wakalah transaction:

  1. The Islamic bank is appointed as customer’s agent (Wakil) to carry out certain activities or to invest its money in various profitable and shariah-compliant ventures. The deal is executed when the principal accepts the agent’s offer.
  2. An agency fee is fixed for contract between the agent and the principle. The agent which is Islamic bank is paid a Fee known as wakalah fee for performing the designated work. .
  3. The profits as well as losses solely belong to the customer.

Application

  • Wakalah can be used in transferring money through bank. The muwakkil appoints the bank as wakil which debit a certain amount of money to an account. The wakil will transfer the money to the selected customer.
  • The muwakkil can transfer his money through a Cash Deposit Machine (CDM). Here, the Cash Deposit Machine will act as wakil on behalf of the bank (muwakkil).
  • In case of postal money orders, where the bank(wakil) receives the money directly from the customer and send to the intended customer(muwakkil)
  • In case of Letter of Credit commitment, the bank acts as a wakil on behalf of a client.
  • Wakalah is used in various services such as sale and purchase, letting and hiring, borrowing and lending, assignment of debt, guarantee, litigation, payment and collection of trade bills, fund management etc.
  • Wakalah is also used in various Islamic finance products like Musharakah, Mudarabah, Murabahah, Salam, Istisna, Ijarah, Takaful products etc.

Differences and similarity between Mudarabah and Wakalah

In case of wakalah the wakil or agent in a Wakalah receives a fixed fee for services but in mudarabah the Mudarib receives a share in profit.  Also the Mudarib gets paid his profit share only if there is profit whereas the Wakil receives a fee whatever the case may be.

The similarity between both is that these two are principal-agent contracts and profit is not guaranteed in either case.

 

wakalah

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