Wakalah

Wakalah is an Islamic contract of agency or representation (from the Arabic word wakala, meaning authorization or delegation). In a wakalah arrangement, the muwakkil (principal) appoints a wakil (agent) to act on the principal’s behalf in specified matters, within agreed limits and for agreed compensation. The agent’s actions should be in accordance with Sharia and the scope of authority set out in the contract.

Key features of wakalah include a formal grant of authority, defined scope and duration, and a remedy for revocation unless the parties specify irrevocability. The wakil acts with loyalty and in the principal’s best interests, obeys instructions, and avoids conflicts of interest. The principal bears risk for entrusted property, subject to the agent’s duty of care; the agent is liable for breaches of contract or violations of Sharia, and may be entitled to a fee or commission as agreed.

Wakalah appears in several forms. Wakalah mutlaqa refers to an unrestricted agency, while wakalah muqayyadah limits the agent to certain tasks. Wakalah bi-l-ujra denotes a fee-based arrangement. In Islamic finance, wakalah is commonly used to appoint a bank or financial institution as an agent to manage investments, collect and remit funds, or execute transactions on the client’s behalf, typically for Sharia-compliant activities. A bank acting as wakil may charge a Wakalah fee and must operate within the investment mandate set by the client.

Regulatory frameworks and standards, such as those developed by AAOIFI, guide wakalah contracts to ensure compliance with Islamic law. Wakalah remains one of several contractual tools used to facilitate permissible financial activity while aligning with faith-based guidelines.