Wakala

Wakala is a contract of agency in Islamic law by which a principal (muwakkil) appoints an agent (wakil) to perform transactions or manage property on the principal’s behalf. The wakil acts within a defined scope and period and is compensated by a pre-agreed fee or a share of profits. Wakala is widely recognized across Islamic jurisprudence as a legitimate means of delegating acts that are otherwise permissible (halal).

Key features and requirements include a clear mandate, a lawful (halal) purpose, capacity to contract, and revocability by the muwakkil unless the agreement states otherwise. The wakil must act in good faith, within the specified authority, and with due care. If the wakil exceeds the authorized mandate or engages in negligence or fraud, they may be liable to the muwakkil.

Variants and applications: wakala mutlaqa refers to an unrestricted agency, while wakala muqayyada refers to a restricted or task-specific agency. In Islamic finance, wakala is commonly used in banking and investment management. For example, a customer may appoint a bank as wakil to invest funds in Shariah-compliant assets (often with a fee or profit share), or to administer a customer’s portfolio. Wakala structures are used in some takaful (Islamic insurance) operations for premium collection and distribution.

Relation to other contracts: wakala is distinct from mudarabah, another Islamic financing arrangement in which profit-sharing occurs between two parties who contribute capital and work. Wakala focuses on agency and management by the wakil, with profits and risks distributed according to the terms of the agency contract and applicable regulations.