All You Need To Know About Wakala

What is Wakala?

We use a wakala term widely in Islamic Finance. Wakala is the agency contract in which the principal offers the capital to the agent to perform a task or labor on behalf of the principal. The main purpose of this contract is to facilitate transactions and business when the principal does not have time, knowledge, or experience to carry out the task on his own. Depending on the agreement by both parties, any of them can terminate a wakala contract at any time.

The agent offers his service to the principal for a fixed fee. The agent can provide different services such as selling and buying, lending and borrowing, debt assignment, guarantee, gifting, litigation, and making payments, among others.

The principal should define the obligations of the agent clearly, and they should not violate Islamic laws. It is not proper for the agency to participate in activities prohibited under Shari’a laws, including selling alcohol, tobacco, or gambling and acts of disobedience such as theft or conducting riba-based business (usury). An agency contract may pinpoint both specific and general items. However, it is more accurate when the nature of the activity to be carried out is explicitly defined to avoid any future misunderstandings. For Example, if a wakala contract is formed for the purpose of sale and purchase of goods, every element such as the quality and quantity of the commodity should be clearly defined.

Types of wakalah

There are two types of wakala according to the scope of the agency: general agency and specific agency.

General agency (Unrestricted wakala)

In general agency, the agent will have full authority over the completion of the task. For instance: The principal delegates an agent to buy three houses with two rooms, then lease them to others. The agent will be responsible for all series of tasks on behalf of the principal in this process. A manager of the restaurant could be an excellent example of a general agency. Because the manager will be responsible for many tasks, he carries out on behalf of the restaurant owner.

Specific agency (Restricted wakala)

In this type of agency, the principal appoints an agent to carry out a particular known transaction on his behalf. For Example, the principal asks an agent to sell or buy a specific house or car at a certain price. It means the principal restricts the agent’s authority to sell a car or house at a specified price.

To read more about Islamic Finance related topics, please click here and visit our academy.

Feel free to sign up for our free stock screening services at