Deposits : Wakalah

The Wakala investment structure was introduce to bridge the gap between what customers usually see in a conventional Fixed or Term Deposit structure (where “interest” is fixed upfront) and an Islamic Mudharaba investment account (where actual profits are distributed based on an agreed ratio and therefore cannot be fixed). Via the contract of  Wakala, a Bank is able to specify an expected return from the deposit received from customer (indicative “fixing” of returns) by investing as the customer’s wakil (agent)  into selected instrument for an agreed wakil fee. The Bank (Wakil) makes the investment to generate specific returns, carried out for and on behalf of the customer (Muwakkil).

The Muwakkil specifies the returns expected from the investment, and the Wakil is required to source an investment that is able to deliver the expected returns, after deduction of the Wakil’s agency fees. Any profits exceeding the agreed returns after deduction of the agency fee will be retained by the Wakil as additional incentive.

As in any type of investment product, the Muwakkil shall bear all risks associated with the placement made by the Wakil except those risks resulting from the Wakil’s misconduct or negligence.

Wakalah Investment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s