What Is A Wakala Agreement
Where a Muwakkil invests money with the Wakil under a Wakala, this money is usually mixed with its own Wakil fund pool. In the event that Wakil becomes insolvent, Muwakkil`s money is mixed with other wakil money and can perfectly be processed by the liquidator in a Uae law that is part of Wakil`s liquidation assets. Background – In 2007, Blom Developments Bank (Blom) invested $11.7 million (the sum of the capital) with Dar Investment Corporation (TID) in two transactions under a Master Wakala (the agreement) agreement governed by English law. The agreement provided that TID would invest the capital in a Sharia-compliant manner. At the end of the agreed investment period for each transaction, TID was contractually obliged to pay Blom the amount of capital plus an agreed return of 5% on the profit realized (the expected profit). Wakil is often required to submit a business plan or feasibility report to The Mouwakkil before the Mouwakkil commits to investing its money with Wakil. Such a business plan is often an indication of the returns Wakil expects on investment. In a normal market, Muwakkil can rely on feasibility reports to decide whether or not to invest with Wakil, but this can be a problem if the market is volatile and relies on such reports. If the economy slows down, these forecasts should not be based solely on Muwakkil, as the expected benefits are unlikely to be realized. Therefore, when concluding a Wakala agreement, Muwakkil must be aware that any loss of its investment by the Wakil is borne by the Mouwakkil itself. The mechanism actually fulfilled all the conditions agreed upon by the scholars and ensured fair and Shari`ah-compliant transactions. However, some problems need to be highlighted in this treaty.
The Wakala contract has been criticized for conflicts of interest and can cause a charge (tuhmah) against an agent. The question is asked when agents act against the interests of their adjudicating entities. This problem is commonly referred to as an agency problem, which arises when the owner`s objectives do not correspond to the objectives of his agents. Many Wakalas provide that the current laws of the treaty are the laws of the United Arab Emirates, as these laws are not in contradiction with the provisions of the Islamic Shari`a. We note that this can create some confusion in the event of a dispute if an act has been considered illegal or unable under UAE law, but a Shari`a Board declares it valid and lawful or vice versa. The evidence of the Shari`a scholars should help the court determine whether an agreement was in compliance, but ultimately it will be up to the courts to decide the case. It will be difficult to have both the laws of the United Arab Emirates and the principles of the Islamic Shari`a to govern a Wakala agreement. The dynamics between law and doctrines are complex, but it is clear that the laws in force are established, while fatwas are issued by shari`a scholars in relation to a particular agreement and may vary from one shari`a board to another and from one agreement to another. Specifically, certain rules and characteristics applicable to Wakala are listed below: as part of a wakala agreement, Muwakkil and Wakil share on profit and risk of loss.
The expected benefits, which are indicated in a Wakala agreement, are only indicative and are not a guarantee of return. If Wakil makes a profit up to the due date, the winnings are shared with the Muwakkil in pre-agreed proportions. Conversely, if a loss is made, this loss is borne by the muwakkil in the absence of gross negligence, fraud or deliberate delay by the wakil.
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