Wakalah is a term in Islamic finance that denotes an agency contract, where one party appoints another to conduct a defined legal action on his behalf, for a specified fee or commission. The agency contract refers to providing any service on behalf of another, where the principal does not have the time, knowledge or expertise to perform the task himself. Wakalah is a non-binding contract and the agent or the principal may terminate this agency contract at any time, as mutually agreed by both parties.
Wakalah is the provision of a service for a fixed fee. Some of these services may include selling and buying, lending and borrowing, debt assignment, guarantee, gifting, litigation and making payments among others. Islamic banks also apply Wakalah in numerous Islamic products like Musharakah, Mudarabah, Murabaha, Salam and Ijarah. Wakalah may be used for collecting and paying trade bills, securitization and fund management. An agency contract may include specific or general items, but it is advisable that the nature of the activity to be conducted is clearly defined, in order to avoid any future clashes. For example, if a Wakalah contract is entered into for the sale and purchase of certain goods, then the quality and quantity and other elements of the commodity should be clearly defined in the contract.