Wakalah

Wakalah (Arabic: وكالة, literally 'agency' or 'delegation') is an Islamic agency contract in which a principal (Muwakkil) appoints an agent (Wakil) to carry out a specific task on their behalf, for a fixed fee (as opposed to profit-sharing). The Wakil acts in a fiduciary capacity. Wakalah is central to modern Islamic finance in multiple contexts: (1) Wakalah investment accounts — banks act as investment agents for depositors, charging a fixed management fee regardless of returns; (2) Takaful — the Wakalah model is the primary structure for Islamic insurance, where participants appoint the operator as agent to manage the takaful fund for an agreed Wakalah fee; (3) trade finance — banks act as agents to purchase goods on behalf of customers. Governed by AAOIFI Shariah Standard No. 23. The Wakalah model has largely replaced the Mudarabah model in Takaful globally due to its transparency and alignment of operator incentives.