In the case of Wakala contracts, the actual profit is allocated according to the profit ratio agreed in the future. The bank (Wakil) is able to indicate the expected return on the client`s deposit by investing in a selected instrument for an agreed Wakil fee. The Wakil will then make the investment to generate a return that will be made for and on behalf of the clients (Muwakkil). The muwakkil indicates the expected returns, and Wakil must procure an investment after deduction of wakil fees in order to achieve the expected returns. Profits that exceed the agreed returns are retained by Wakil as an additional incentive. Like any other investment, Muwakkil bears all risks and losses in the event of default, with the exception of risks and losses resulting from Wakil`s fault or negligence. The structure of Wakala deposits is shown in the figure below lenders such as Malaysia Maybank Islamic, Bank Islam and CIMB Islamic, Gatehouse of the United Kingdom and Indonesia PT Bank Syariah Muamalat have agreed to use the model for interbank and corporate investments-Wakala, an Islamic banking organization said. Wakala is an agency contract in which an investor authorizes an agent to manage a set of assets according to religious principles such as a prohibition of interest and financial speculation. “In addition to cost and resource savings, the adoption of the standardized wakala investment agreement would promote transparency, consistency, operational efficiency and robustness of Islamic investment operations,” said the Association of Islamic Banking Institutions of Malaysia, which originated the model agreement. The agreement on the Wakala Bill is the latest attempt to create common standards and documents worth $1 trillion for the Islamic financial sector to encourage more cross-border transactions. “The main objective of this documentation standard is to reduce the over-reliance of financial institutions on the murabaha of raw materials and to promote greater use of wakala without restriction,” the IIFM said in a statement. In addition, no physical property is required under the Wakala contract.

This raises the question of whether wakala is an effective governance structure in terms of risk and control. Dubai: A standard contract template for Islamic interbank transactions was launched last week as the industry strives to diversify the range of liquidity management solutions available. The mechanism essentially fulfilled all the conditions agreed upon by scholars and ensured fair and Shariah-compliant transactions. However, there are some issues that need to be highlighted in this treaty. .