Wakalah is an Arabic term (وكالة) that implies, in literal meaning, the act of taking custody of something or applying a skill to the benefit of others. Originally, it is derived from “tawkeel” which denotes an act of appointing someone to take charge of an object, task, responsibility, etc.

In the context of Islamic finance and banking, wakalah (or wikalah) is a non-core contract, i.e., it exists in association with a core contract (such as sale, lease, etc). By definition, it a contract of agency in which one person (a principal or muwakkel) appoints another (an agent or wakeel) so that the latter performs on behalf of the former a certain task in accordance with specific stipulations, usually against a preset fee. The agent (wakeel) is legally and contractually required to discharge his responsibility in an honest and straightforward way to the best interest of his principal (muwakkel).

In general, wakalah can be classified into the following categories, all of which is undertaken by the agent on behalf of the principal:

• Wakalah bil khusoomah: agency for taking up disputes or legal cases.
• Wakalah bi taqadhi al-dayn: agency for collecting or receiving debt.
• Wakalah bi qabdh al-Dayn: agency for taking possession of debt.
• Wakalah bil shira’: agency for undertaking purchase.
• Wakalah bil ba’i: agency for undertaking sale.