Wakala is an agency contract by which one person, the muwakkil, authorises another, the wakil, to carry out a specific legal act on his behalf, such as buying, selling or collecting money, either free of charge or for an agreed fee.
Four pillars for a valid mandate
There must be a principal able to perform the act personally, an agent able to understand it, a lawful and sufficiently defined subject matter, and wording that expresses offer and acceptance. Acceptance can follow simply from the agent starting to carry out the task.
Which acts can be delegated?
Any act the principal could perform personally and that admits representation: selling, buying, leasing, paying a debt or collecting a receivable. Purely personal acts such as a prayer or an oath cannot be delegated. The subject matter itself must also remain lawful.
The agent as a trustee
The wakil holds entrusted property as amana. He is liable for a loss only in case of misconduct, negligence or breach of instructions. A clause making him guarantee the outcome or the capital would change the very nature of the contract.
Can the agent buy for himself or sell to a relative?
Most jurists forbid the agent to sell the principal's property to himself or to buy his own property for the principal without express consent, to avoid a conflict of interest. Some schools also scrutinise a sale to the agent's spouse or child.
Unpaid mandate or paid mandate
Historically, wakala was often a free service between people who knew each other. It can also carry a fee, which must be known at signing, either as an amount or a percentage of a defined base. A fee of uncertain size would introduce gharar.
The customer acting for the bank before a murabaha
A bank may ask the customer to buy the goods from the supplier on the bank's behalf. The customer then acts as agent, after which the bank sells the item to him. Both steps must stay separate, with genuine possession by the bank in between.
Why the agent must declare purchase for another
In that structure, the customer must notify the bank that the purchase was made on its behalf, and the bank then confirms the sale. Without this documented sequence, the bank would sell something it does not yet own, which Sharia forbids. Sharia boards check precisely these documents.
The takaful operator paid through a management fee
Under the wakala model of takaful, the operator runs the participants' fund as agent and deducts a fee from contributions. The fund remains the participants' property: the operator does not pocket the underwriting surplus, which goes back to them according to the stated rules.
Hybrid model with mudaraba for investments
Many takaful operators combine two contracts: wakala for technical management and claims, and mudaraba for investing the funds. The operator then earns a fixed fee on one side and a share of investment profits on the other.
Revocation, death and incapacity
An unpaid mandate can be revoked at any time by either party, provided the other is informed. It also ends on the death or loss of legal capacity of either party, or when the entrusted subject matter no longer exists.
Passing the task on to a sub-agent
In principle the agent may hand the task to another agent only if the principal authorises it or custom makes it unavoidable, for instance a bank relying on a commodity broker. The second agent is then answerable to the original principal.
What an agency agreement should spell out
A sound contract defines the scope of authority, duration, fee, purchase or investment limits, and how the agent reports. The customer should also check which Sharia board approved the model and whether it publishes its opinions.
Specialist external source
Malaysia's central bank presents its framework for Islamic banking and takaful there, including a policy document dedicated to the Sharia requirements of the wakala contract.