Wa'd is a unilateral promise by which one person commits to another to perform a future act, such as buying or selling an asset, without the sale being concluded at the time of the commitment; Islamic finance uses it to secure transactions.
A promise that comes before the contract
A wa'd transfers neither ownership nor price: it only announces that one party will act later. The promised sale, lease or exchange must be concluded through a separate instrument at the agreed time, with a fresh offer and a fresh acceptance.
Moral duty or legally enforceable commitment?
Most classical jurists saw a promise as a moral duty that a judge would not enforce. Part of the Maliki school makes it enforceable when the beneficiary has incurred costs in reliance on it. Contemporary Islamic finance relies heavily on that opinion.
Compensating actual loss, not lost profit
If the promisor withdraws without a valid excuse, he must in principle cover the loss actually suffered, for instance the gap between the cost of buying an asset and the price obtained on resale to a third party. Unrealised expected profit is generally not recoverable.
No fixed sum payable on withdrawal
Setting in advance an amount payable if the promisor walks away would turn the promise into a source of gain unrelated to any harm, which comes close to riba. Contracts instead provide for compensation based on the loss established, sometimes backed by a good-faith deposit.
Unilateral wa'd, parallel promises and muwa'ada
A wa'd binds only one party. Two independent promises, each tied to a different event, are accepted by many Sharia boards. Muwa'ada, by contrast, means two reciprocal and binding promises over the same transaction, which raises more serious difficulties.
When cross-commitments turn into a forward sale
If buyer and seller both firmly commit to conclude a later exchange of currencies or gold at a price fixed today, the deal amounts to a forward sale. AAOIFI rejects such a binding muwa'ada where the exchange requires immediate delivery of both sides.
The originator's repurchase commitment in sukuk
In many sukuk, the originator promises to buy the assets back from the issuing vehicle at maturity or on default, which funds the redemption paid to holders. Conversely, the vehicle may promise to sell those assets so that an early redemption becomes possible.
Repurchase at face value: a limit set by AAOIFI
For ijara sukuk, repurchase at the issue price is accepted because the lessor remains owner of the leased assets. For musharaka, mudaraba or wakala sukuk, AAOIFI clarified in 2008 that the manager cannot promise a repurchase at face value, since that would guarantee the capital.
The customer who orders the purchase in murabaha
Before buying a vehicle or goods, the bank obtains the customer's promise to acquire the item once the bank owns it. This promise is not a sale: the bank carries the risk of the asset between its acquisition and the signing of the murabaha itself.
Hedging a currency exposure through a promise
A company expecting a payment in dollars can obtain its bank's promise to sell it another currency at a set rate. Only the bank is bound; the company stays free. The exchange is concluded spot on the day the promise is exercised.
A promise to transfer the asset when the ijara ends
In a lease ending in ownership, the lessor promises to transfer the asset to the lessee at expiry, by token-price sale or gift. This promise sits in a separate document so that lease and transfer do not merge into one contract.
What to read in an undertaking before signing it
One should identify who promises, on what event, at what price and for how long, as well as how compensation is calculated. The link with the other contracts in the structure must be explicit. Approving the structure is a matter for the institution's Sharia board.
Specialist external source
It hosts the resolutions of the Malaysian securities regulator's Shariah Advisory Council, some of which address the purchase and sale undertakings used in sukuk.