Wakala

Wakala (Contract of an Agency) refers to a contract where a Principal/Client ( Muwakkil) empowers an agent (or wakeel) to do a financial activity on his or her behalf. Wakala is generally used in Islamic Finance, where an agent is authorized to commence financial activities on another client’s behalf. The Wakala law is to facilitate economic exchanges, where the client is unable, or unwilling to act personally due to distance, physical issues, and other hindrances.

Mechanism of Wakala Contract:

Principal empowers an agent, to perform certain financial activities of his behalf.

The agent performs the task, according to the instructions.

The agent is permitted to accept a pre-agreed agent fee and the Principal is entitled to receive profit or loss

Conditions of Wakala Islamic Finance:

The principal should have the will, power, and competence to be the part of the contract

The agent should also be an eligible person to act as an agent and be part of the contract.

The subject matter should be known and must be lawful.