In brief
In investment wakalah, the client entrusts their money to an agent who invests it on their behalf for a fee fixed in advance. The result, profit or loss, belongs to the client; the agent guarantees the capital only in the event of misconduct. It is used for savings accounts, funds and takaful.
The principle
Agency (wakalah) is accepted by the Qur’an, the Sunnah and consensus: one may appoint someone to act on one’s behalf, free of charge or for a fee. Applied to investment, it works as follows:
- the agent invests in compliant assets, according to known rules;
- he receives a fixed fee (an amount or a percentage of the assets under management), whether or not there is a profit;
- the result belongs to the client; the agent may also receive a performance fee above an expected return, if the contract provides for it;
- he does not guarantee the capital, except in the event of misconduct or negligence.
Wakalah or mudarabah?
In mudarabah, the manager is paid only through a share of the profit; in wakalah, he receives a fixed fee. Turkish participation banks offer “vekâlet” accounts, and many Islamic funds are managed on this model. Takaful often uses wakalah to pay the managing company.
Frequently asked questions
Is an announced “expected return” a form of interest?
No, as long as it remains a forecast: the client bears the actual losses. If it were guaranteed along with the capital, the contract would become an interest-bearing loan.