Guide to wakalah in trading — the agent purchases on behalf of the principal

In-Depth Analysis

One of the most common applications of Wakalah in Islamic finance is in the context of trading transactions, where the Wakeel is appointed to purchase goods, commodities, or assets on behalf of the Muwakkil. This is a fundamental building block of many Islamic banking products, particularly Murabahah, Musawamah, and commodity-based transactions. The rules governing the Wakeel's conduct in a purchase agency are well established in Shariah jurisprudence and carry significant practical implications. When the Muwakkil appoints the Wakeel to purchase goods, the principal must specify the nature and description of the goods, the quantity, the quality standards, and ideally the price range or maximum price the agent is authorized to pay. If the Muwakkil specifies a maximum price and the Wakeel purchases the goods at or below that price, the transaction is binding on the principal. If the Wakeel secures a price lower than the maximum, the benefit accrues to the Muwakkil unless the agency agreement provides otherwise. Classical Shariah scholars, particularly from the Hanafi school, held that the Wakeel has a duty to obtain the best available terms for the principal — a concept remarkably similar to the modern fiduciary duty of best execution. Upon purchasing the goods, the question of possession (Qabd) becomes critical. The goods purchased by the Wakeel on behalf of the Muwakkil are immediately considered to be in the constructive possession of the principal. The Wakeel does not take ownership of the goods at any point — the agent merely facilitates the transfer of ownership from the seller to the Muwakkil. This constructive possession framework is essential to the Shariah validity of many Murabahah transactions where the bank appoints the customer or a third party as its purchase agent. The author highlights an important practical issue: in some cases, the Wakeel may need to use the principal's funds to make the purchase, while in other cases, the Wakeel may use its own funds and seek reimbursement. Both arrangements are permissible under Shariah, but the terms must be clearly agreed upon in advance. If the Wakeel uses its own funds, the principal must reimburse the agent for the actual purchase price plus any agreed-upon expenses. The Wakeel cannot charge the principal more than the actual cost unless a separate fee arrangement exists.