Murabaha (مرابحة)- cost-plus sale– is one of the most common Islamic contracts of trading. It belongs in the broader class of commutative contracts (uqud al-mu’awadha) and also the class of nominate contracts (uqud musammat). In the present-day realm of Islamic banking and finance, murabaha ranks among the most commonly used modes of financing (it is as old as other financing contracts such as musharaka).

Agency (wakala– وكالة) is a contract (aqd) whereby one party represents another (principal or muwakkel) and acts as its agent (wakil). The subject-matter (mahall) of wakala is the performance of a certain task against a fee. Agency is used in the realm of Islamic finance in a variety of contracts and contractual agreements including murabaha, ijara, musharaka, etc.

From a shari’a perspective, the following rules govern agency in murabaha:

• The seller (e.g. an Islamic bank) may appoint the buyer (the client- purchase orderer) as its agent (wakil) to purchase the object of murabaha from the supplier on behalf of the Islamic bank.
• The purchase orderer may pay part of the purchase price (thaman) to the supplier, so that this payment will be deducted from the selling price at which the Islamic bank will conclude the murabaha contract with the purchase orderer.
• The appointment of the agent must be effected through a separate contract (not under the murabaha contract itself). Notwithstanding, the Islamic bank (the principal or muwakkel) must not waive its liability (daman) as to the object of murabaha.
• The purchase orderer, appointed as agent, must not waive the effective transfer of the underlying asset from the murabaha seller.
• The purchase orderer may draw price quotations (on the object of murabaha) either on behalf of the Islamic bank (in the name of the Islamic bank) or under his own name subject to prior approval of the Islamic bank.
• The Islamic bank may appoint the supplier as its selling agent to execute the murabaha contract with the purchase orderer provided that the Islamic bank has taken possession (qabd) of the object of murabaha.
• The supplier may be appointed as the agent of the purchase orderer to buy the object of murabaha on a cost-plus basis from the Islamic bank provided that the supplier does not also act as a selling agent of the Islamic bank to execute the sale transaction on its behalf. The agency contract must be a standalone contract- i.e., not associated with the sale contract entered into with the supplier to sell and deliver the goods to the Islamic bank.
• The purchase orderer, who have issued a promise (wa’ad) to purchase the goods, may be appointed as the exclusive authorized agent to purchase or import certain goods from the supplier or exporter. Such dealings between the purchase orderer and supplier must be revealed to the Islamic bank. Likewise, the actual purchase price must be made known to the Islamic bank.
• In murabaha documentation, the identity of the purchase orderer, acting as agent for the Islamic bank to conclude the murabaha contract, may be revealed.