What is wacala?

Wacala, in Islamic finance, refers to an agency agreement where one party (the muwakkil or principal) appoints another party (the wakil or agent) to perform a specific task on their behalf. The wakil acts as the representative of the muwakkil.

Important characteristics of wacala include:

• Appointment: The principal appoints an agent to act on their behalf in a particular matter.
• Specific Task: The scope of the agency must be clearly defined, specifying the tasks the agent is authorized to perform.
• Fee (Ujrah): The wakil is typically compensated for their services through a fee or commission. This fee must be agreed upon in advance.
• Trust & Fiduciary Duty: The wakil has a fiduciary duty to act in the best interests of the muwakkil and to act honestly and responsibly.
• Liability: The liability of the agent depends on the terms of the agreement. Generally, the agent is not liable for losses incurred in the normal course of business unless due to negligence or breach of duty.

Wacala is used in various Islamic financial transactions, including:

• Investment Management: Where an agent manages investments on behalf of the principal.
• Trade Finance: Where an agent facilitates trade transactions.
• Mortgage Finance: In some Islamic mortgage structures.