Islamic Finance: Essential elements for a 'wakala' to be complete and effective

The literal meanings of wakala are (a) to guard and (b) to entrust a matter to another and to rely on him. The Sharia illustration of wakala is the substitute of a principal in order to perform a job permitted by the principal. In other words, wakala or agency is to find a substitute for oneself to dispose of a certain assigned job or jobs.

For example, Ahmed wants to sell a house but finds himself unable to do so due to his pre-occupation or inexperience in the real estate field. As such, he appoints a friend, Badar, who has some experience is this field, and delegates his own power as the owner and permits him to sell the house at a specified price.

In Sharia, Ahmed would be called muwakkil or the principal, Badar the wakil or agent and the agreed arrangement between Ahmed and Badar would be wakala or agency.

Essential elements

Islamic jurists have laid down some essential elements for a wakala to be complete and effective.

These are:

Contracting parties
These are the principal and agent. The condition for a principal is that he should have full authority under Sharia to perform the assigned job himself.

If a person does not have the authority to dispose of certain things himself, he will have no authority to appoint an agent.

Similarly, a person not holding 'perfect capacity' - such as a minor or someone insane - is not authorised by Sharia to appoint an agent.

Subject matter
It is an act for which an agent is appointed to carry out. It could also be described as the assignment entrusted to the agent by the principal.

Jurists state that the subject matter of an agency agreement must be unambiguous and clear to the agent. They give an example. If a person says to another "I appoint you as my agent for all my affairs" but does not define the affairs, the agency will not be valid under Sharia due to hazards for both parties.

However, if a person says to another "I appoint you as my agent to buy me an independent house for Dh1.5 million in the Jumeirah area of Dubai", the agency will be valid since there is little scope for ambiguity and hence no hazards for either party.

Sharia-compliance
It is necessary that the scope of the agency does not cross over any Sharia boundaries. For example, the agency will be invalid if awarded to collect interest on loans, or for any other Sharia-repugnant act for that matter.

Offer and acceptance
Sharia, a contract is constituted and considered valid if one party offers and the other accepts, irrespective of whether it is oral or written. Similarly, an agency agreement will deem to have come into existence if an offer has been made by the principal and accepted by the agent. However, some Islamic jurists believe that the formal acceptance by the agent is not a condition for the constitution of the agency contract.

Unconditional
Sharia does not allow an agency contract to be conditional. For example, it will not be a valid agency contract if a person tells another that he appoints him as agent to sell his inventory if he needs to travel abroad in the near future.

The writer is a senior manager with Dubai Islamic Bank.