Wakala Agreement Definition

In Islamic Finance, the term wakala describes an agency or delegated authority in which a muwakkil (captain) appoints the Wakil (agent) to perform a specific task in the name of the Muwakkil. Appointment of agent – The appointment of a representative by the client represents offer and acceptance. The role of the representative should be clearly defined in the Wakala and can be specific (for example. B the agent is to sell a specific asset at a certain price or according to certain instructions of the client), or in general (for example. B, a client may appoint a representative who buys certain types of goods if requested). The structure of a typical Wakala agreement is described below: it should be noted that the Court has not made a decision on the merits of TID`s defence, that the agreement is not in accordance with Sharia law, but only that such a defence can theoretically be argued. In Wakala contracts, the actual profit is distributed according to the pre-agreed profit rate. The bank (Wakil) is able to specify the expected return on customer input by investing in selected instruments for an agreed wakil fee. The Wakil will then make the investment to generate a realized return for and on behalf of customers (Muwakkil). Muwakkil indicates the expected returns on the investment and Wakil must secure an investment to obtain the expected returns after deducting Wakil`s fees. Profits above agreed returns are retained by Wakil as an additional incentive. Like any other investment, Muwakkil bears all risks and losses, except for risks and losses resulting from Wakil`s fault or negligence, in the event of a delay. The structure of the Wakala contribution is presented in the graph below At the end of 2008, it became clear that TID blom could not pay the amount of capital and the expected profit at the end of the investment period.

In January 2009, Blom requested a summary judgment on the amount of the capital, but not the expected profit. TID appealed because the agreement is not in accordance with Sharia principles and is therefore ultra vires on TID, since the expected profit is equivalent to an interest payment (riba) prohibited by Sharia law. The appeal was admitted on the basis that there were issues that needed to be thoroughly considered at the hearing. The judgment also stated that even if the agreement were considered ultra vires, Blom would still be entitled to a refund against TID. In order to reintegrate the parties into their pre-contract positions, TID would remain responsible for the sum of the capital. The mechanism actually fulfilled all the conditions agreed upon by the scholars and ensured fair and Shari`ah-compliant transactions. However, some problems need to be highlighted in this treaty. The Wakala contract has been criticized for conflicts of interest and can cause a charge (tuhmah) against an agent. The question is asked when agents act against the interests of their adjudicating entities. This problem is commonly referred to as an agency problem, which arises when the owner`s objectives do not correspond to the objectives of his agents.