According to the general principles of the Islamic shari`a a Wakala agreement is an agency contract in which Wakil acts as agent for the Muwakkil, in accordance with the provisions of the Wakala. An action carried out by the Wakil as an agent on behalf of The Mouwakkil s. is considered by Mouwakkil himself as an action. However, wakil is required to act assiduously in fulfilling its obligations. 2. The SPV, in its main capacity, enters into an agency agreement (Wakala) with the representative for the investment of Shari`ah-compliant assets, which were chosen by the representative on behalf of the SPV; Where a Muwakkil invests money with the Wakil under a Wakala, this money is usually mixed with its own Wakil fund pool. In the event that Wakil becomes insolvent, Muwakkil`s money is mixed with other wakil money and can perfectly be processed by the liquidator in a Uae law that is part of Wakil`s liquidation assets. Wakala is an agency contract in which the account holder (main owner) appoints an Islamic financial institution (agent) to conduct investment activities that claim that wakala "allows a much more efficient recycling of short-term liquidity in the Islamic banking system". Islamic banks and financial institutions offer Wakala contracts in many forms, including letters of credit, Islamic money certificates, Islamic bonds, term deposits and Islamic insurance.
As part of a Wakala agreement, Muwakkil and Wakil share both the profit and the risk of loss. The expected benefits, which are indicated in a Wakala agreement, are only indicative and are not a guarantee of return. If Wakil makes a profit up to the due date, the winnings are shared with the Muwakkil in pre-agreed proportions. Conversely, if a loss is made, this loss is borne by the muwakkil in the absence of gross negligence, fraud or deliberate delay by the wakil. The clauses in the Wakala Treaties that state that Islamic Chararia predominates in the event of conflict or ambiguity with existing laws should not be encouraged. The Wakala Presentation Agreement is the latest effort to establish common standards and documentation for the $1 trillion Islamic financial sector to encourage more cross-border transactions. Many Wakalas provide that the current laws of the treaty are the laws of the United Arab Emirates, as these laws are not in contradiction with the provisions of the Islamic Shari`a. We note that this can create some confusion in the event of a dispute if an act has been considered illegal or unable under UAE law, but a Shari`a Board declares it valid and lawful or vice versa. The evidence of the Shari`a scholars should help the court determine whether an agreement was in compliance, but ultimately it will be up to the courts to decide the case.
It will be difficult to have both the laws of the United Arab Emirates and the principles of the Islamic Shari`a to govern a Wakala agreement.