What is Wakala? Wakalah Meaning in Islamic Banking and Types of Wakalah | AIMS UK

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Wakalah is a type of agency contract used in Islamic banking and finance. Under wakalah, one party (the wakil) agrees to act on behalf of another party (the principal). The wakil is typically compensated for their services with a fixed fee or a commission on the transactions they carry out on behalf of the principal. Wakala can be used for a variety of purposes, including investments, trade financing, and deposit-taking. While wakalah contracts are typically used between banks and their clients, they can also be used between other types of businesses. For example, a mobile phone company may use wakalah to appoint a retail partner to sell its products on its behalf.
Wakalah is just one of several agency contracts permitted under Islamic law. Others include mudarabah (profit-sharing) and murabahah (cost-plus financing). Wakalah is often preferred to these other types of contracts because it is less risky for the parties involved. Under mudarabah and murabahah, for example, the principal bears the risk of loss if the project being undertaken fails to produce the expected results. Under wakalah, by contrast, the risk remains with the person or entity who initiated the project in the first place. This makes wakalah an attractive option for banks and other financial institutions looking to minimize their exposure to risk.
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