Wakala (Agency)
Principal-agent relationship in Islamic finance, delegating investment to an agent.
Detailed Description
Wakala (Agency)
What is the main purpose of Wakala in Islamic finance?
Wakala serves as a mechanism for investment management, risk mitigation, and executing financial contracts while ensuring compliance with Shariah.
What are the two main types of Wakala?
The two main types of Wakala are Wakala bil Istithmar, which involves investment management, and Wakala bil Ujrah, which is based on a fee structure for services rendered.
How does Wakala differ from conventional agency relationships?
In Wakala, the agent must act solely in the best interest of the principal, while in conventional agency, the agent may act in their own interest.
What risks are associated with Wakala?
Risks include potential mismanagement by the agent, disputes over contract terms, and reliance on the agent's expertise and integrity.
What regulatory considerations must be taken into account for Wakala contracts?
Wakala contracts must comply with Shariah and local laws, with requirements for transparency in fee structures and adherence to ethical standards.