Wakala Investment Agreement

For Wakala contracts, the actual profit is distributed according to the pre-agreed rate of profit. Bank (Wakil) is able to indicate the expected return from client input by investing in a selected instrument for an agreed Wakil fee. Wakil will then make the investment to obtain a return realized for and on behalf of the clients (Muwakkil). The Muwakkil indicates the expected returns and Wakil must, after deduction of Wakil fees, raise an investment to obtain the expected returns. Profits above the agreed returns are retained by Wakil as an additional incentive. Like any other investment, muwakkil bears all risks and losses in the event of failure, with the exception of risks and losses resulting from wakil`s fault or negligence. The structure of the Wakala deposit is shown in the following figure (3) The investment is used by the agent to purchase the selected assets from one or more sellers; In a financial context, the investor instructs the agent to invest the funds made available by the investor in investments or assets, and the agent provides the agent with expertise and manages these investments for a fixed period on behalf of the client in order to obtain an agreed profit. In Islamic Finance, the term Wakala describes an agency or delegated authority where a Muwakkil (Principle) appoints the Wakil (agent) to perform a specific task on behalf of the Muwakkil. The concept of profit-saving and risk of loss is confirmed by the Civil Code of the United Arab Emirates. The principles of the Civil Code emphasize that an agent is not liable for losses if the investments made do not bring a return, provided that the agent acts in accordance with the conditions of his agency. It is therefore recommended to include in Wakalas measures such as assurances and guarantees in order to strengthen capacity and compliance with Islamic Sharia and to expressly provide that neither wakil nor mouwakkil may break their contractual obligations declared due to non-compliance with Sharia or ultra vires.

Many Wakalas provide that the current laws of the treaty are laws of the United Arab Emirates, as long as these laws are not contrary to the provisions of islamic Sharia. We emphasize that in the event of a dispute, this can lead to confusion if an act has been deemed illegal or incapable under the laws of the United Arab Emirates, but a Sharia council declares it valid and legal or vice versa. Evidence from Sharia scholars should help the court determine whether an agreement was compliant, but ultimately, the courts will decide the case. The fact that UAE laws and Islamic Sharia principles regulate a Wakala agreement will be problematic. The dynamics between law and doctrines are complex, but it is clear that the applicable laws are fixed, while fatwas explained by Sharia scholars are issued in relation to a particular agreement and can vary from one Sharia council to another and from one agreement to another. .


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