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  • Introduction

    • CA-3.10.1

      This Section sets out the minimum capital adequacy requirement to cover the risk of losing invested capital arising from an Islamic bank licensee entering into asset-side financing contracts or transactions that are based on the Shari'a rules and principles of Wakalah.

      January 2015

    • CA-3.10.2

      An Islamic bank licensee assumes the role of a principal (Muwakkil) and appoints the customer as agent (Wakil) to carry out a specified set of services or act on its behalf. This Section is applicable to both restricted and unrestricted Wakalah financing.

      January 2015

    • CA-3.10.3

      Wakalah is a contract of agency whereby one person contracts to perform any work or provide any service on behalf of another person. Businesses rely on a range of individuals to act on their behalf; these include employees, directors, partners, and a range of professional agents. An action performed by an agent on behalf of the principal will be deemed to be an action by the principal. An agent will obtain fees for services rendered according to the contractual reward structure offered by the principal which may incorporate a performance-related element.

      January 2015

    • CA-3.10.4

      Profits generated are distributed to the Muwakkil less the Wakil fee, in accordance with the terms of the Wakalah agreement. In case the contract includes some "indicative" or "expected" profit rate on the investment, the Wakalah contract can include a clause stipulating that the Wakil's remuneration may be:

      (a) A pre-agreed flat fee; or
      (b) A certain share of profit added to a pre-agreed flat fee, subject to the terms and conditions.
      January 2015

    • CA-3.10.5

      A Wakalah financing can be carried out on either:

      (a) A restricted basis, where the capital provider allows the Wakil to make investments subject to specified investment criteria or certain restrictions such as types of instrument, sector or country exposures etc.; or
      (b) An unrestricted basis, where the capital provider allows the Wakil to invest funds freely based on the latter's skills and expertise. For interbank Wakalah, the Wakil is permitted by the Muwakkil to invest the investment amount on a discretionary basis, but only in Shari'a-compliant transactions.
      January 2015

    • CA-3.10.6

      As the Muwakkil, the Islamic bank licensee is exposed to the risk of losing its invested capital — that is, capital impairment risk. Any loss on the investment is to be borne solely by the Muwakkil, but is limited to the amount of its capital. Losses that are due to fraud, misconduct, negligence or breach of contractual terms are to be borne by the Wakil. The Wakil shall be entitled to any pre-agreed flat Wakil fee irrespective of whether the actual profit is less than, equal to or greater than any expected profit, and also in the event of a loss.

      January 2015

    • CA-3.10.7

      However, while it is not permissible for a Wakil to give a guarantee against losses or for any indicative or expected profits, such a guarantee may be given by a third party on the basis of tabarru' (donation). In such a case, the amount of the Wakalah capital so guaranteed may be considered as subject to credit risk with a risk-weighting equal to that of the guarantor. In particular, such guarantees may be given when liquid funds are placed in an Islamic interbank market under a Wakalah contract.

      January 2015

    • CA-3.10.8

      In the absence of any fraud, misconduct, negligence or breach of contractual terms on the part of Wakil, all the risk of loss on the investment is to be borne by the Muwakkil. Therefore, the Islamic bank licensee is exposed to the skills of the Wakil that manages the investments on behalf of the Islamic bank licensee, as well as to business risks associated with the underlying activities and types of investments or assets of the Wakalah agreement.

      January 2015