TOPIC:

AL-WADIAH (DEPOSIT)
AND
AL-WAKALAH(AGENCY)
LECTURE 1

Learning Objectives
(Objectives: Students should be able to)
1. explain the conceptual meaning of the terms AlWadiah and al-Wakalah, and their features.
2. explain various applications of al-Wadiah and alWakalah in the Islamic finance industry and
business dealings
3. memorize and recite various Quranic verses on
both concepts.

LECTURE 1

Chapter Outline
AL-WADIAH

AL-WAKALAH

1. Definition

1. Definition

2. Legality; Quranic, Ahadith & Ijma

2. Legality; Quranic, Ahadith & Ijma

3. Pillars Of Al-Wadiah and its

Conditions

3. Pillars Of Al-Wakalah and its

Conditions

4. Types Of Al-Wadiah

4. Types Of Al-Wakalah

5. Modern Applications

5. Modern Applications

6. Issues of Wadiah Contract in IBF

6. ssues of Al-WakalahContract in IBF

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1. AL-WADIAH:
MEANING AND BACKGROUND

Literal: The term wadiah ( )is derived from the verb wadaa, which means
to leave, lodge or deposit

Technical:
Hanafiyyah: The term wadiah is derived from the verb wadaa, which means to

leave, lodge or deposit

Syafiiyyah and Malikiyyah: representation in keeping possession of respectable
private goods in a specific way.
Hanabilah: representation in keeping (others property) and it is done (by the
keeper) as a charity (Ibn Muflih, Al-Furu, 7/210).

Conclusion: Any belongings left by the owner or his representative with somebody to
take care of them. The act is done on the basis of charity.

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1. AL-WADIAH:
LEGALITY
Al-Quran

Al-Sunnah

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1. AL-WADIAH:
PILLARS OF AND CONDITIONS

Al-Mudi

Al-Wadi

The depositor and the custodian must be

persons of sound mind
Hanafiyyah: Attaining the age of maturity is
not compulsory provided consent from
parents to do business is obtained
Majority of Muslim jurists: The contracting
parties must be eligible to be a wakil (agent),
i.e., they must be persons who are of sound
mind, and have attained the age of maturity
and intelligence.
The custodian must ensure his capability to
safe-keep the deposit.

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Al-Muda
The deposited property must be
owned and deliverable. The item of
deposit must also be a form of
property that can be possessed
physically.

The majority of jurists are of the view

that there must be a valid offer and
acceptance made in the wadiah contract.

1. AL-WADIAH:
TYPES
a. Al-Wadiah Yad al-Amanah
(based on trust)
1.

2.
3.

4.
5.

Features:
The custodian shall keep the deposit as if he is keeping and taking care of his own
property. He has the duty to protect the property from being lost or damaged
according to customary practice.
The custodian is not responsible for any damage to the property so far as it did not
result due to his negligence
The custodian is not entitled to any profits gained from the contract (he is at the same
time not liable for undertaking the contract). Any benefits accrued from the deposit
belong to the owner.
Anything other than a safe-keeping arrangement, such as hiring or lending of the
deposited property should be done with the permission of the owner.
The custodian must return the deposited property to the owners at any time upon the
request of the depositor

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1. AL-WADIAH:
TYPES
b. Al-Wadiah Yad al-Damanah
(Guaranteed safe custody)

1.
2.
3.

4.

Features:
The custodian is entitled to use the deposited property for trading or any other
purposes.
The custodian has a right to any income derived from the utilisation of the deposited
item and at the same time he is liable for any damage or loss.
The custodian owns the profit and therefore, it is under his discretion (not an
obligation) to give some portion of it as a gift (hibah) to the depositor. The gift cannot
be in the form of a pre-agreed arrangement. This is simply because this type of wadiah
is similar to a loan and therefore, the pre-agreed benefit will be regarded as riba.
The custodian must return the deposited property to the owners at any time upon the
request of the depositor.

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1. AL-WADIAH:
MODERN APPLICATIONS
Wadiah
Yad
Damanah

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1. AL-WADIAH:
ISSUES IN IBF

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BREAK AND RECAP

AL-WADIAH
1. Definition

Literal: ?
Technical: ?

2. Legality;

Quranic: ?
Ahadith: ?

3. Pillars

Contracting Parties : ? and their conditions

Object of contacts : ? and their conditions
Ijab Qabul : their conditions

4. Types

Yad Amanah: ? Example ?

Yad Damanah: ? Example ?

2. AL-WAKALAH:
MEANING AND BACKGROUND

Literal: , the term wakalah or wikalah ( ) is a noun of the word wakkala which has
several meanings, including performing a task on behalf of others, preservation and
delegation of a job to another.

Technical:
AAOIFI Shariah Standard: wakalah is the act of one party delegating the other
to act on its behalf in what can be a subject matter of delegation

Wakalah is a nonbinding contract means the principal or the agent may withdraw
at any time by a mutual agreement or by any other appropriate means.

Conclusion: Authorising another person to undertake any dealings on ones behalf.

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2. AL-WAKALAH:
LEGALITY
Al-Quran
(18:19)

Al-Sunnah

A hadith reported by al-Bukhari and Muslim, that the Prophet (p.b.u.h.)

sent agents to collect zakat.

Al-Hakim narrated that the Prophet (p.b.u.h.) sent Amr ibn Umayyah AlDamri as an agent to ask for the hand of Umm Habibah binti Abu Sufyan
in marriage.

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2. AL-WAKALAH:
PILLARS OF AND CONDITIONS
Among the conditions that both principal and agent need to
satisfy are:

(Al-Muwakkil
/ principal)

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(Al-Wakil /
agent)

1.

Both parties are eligible to take the actions (ahliyyah) The

principal possess a sound mind. Thus, a wakalah from an
insane, or a child is invalid. The Hanafiyyah view that a
wakalah from a child in financially beneficial actions such as
accepting gifts is permissible, whereas in intermediate cases
where the actions may lead to financial gains and losses such
as trading and leasing, the permissibility of a wakalah from a
child depends on whether he is allowed to deal with those
actions.

2.

The principal and the agent should commission the agency

based on his freewill without any coercion from others.

3.

The principal should know the agent, either by name or his

physical appearance. Likewise, the agent should identify his
principal either by name or his characteristics.

2. AL-WAKALAH:
PILLARS OF AND CONDITIONS
1. The object of an agency contract should belong to the principal.
Thus, he should have the right of disposal.
2. The object of an agency contract should be eligible for legal
authorisation, such as financial matters, etc. As such, a wakalah is
impermissible in pure acts of worship such as prayer and fasting,
oath-taking, and testimony. Meanwhile, in acts of worship that have
a financial element such as zakat, hajj, and slaughtering sacrificial
animals, the wakalah is allowed by most scholars.
3. The object of an agency contract should not involve activities
prohibited in Shari ah such as theft and usurpation of property,
trading impermissible commodities or conducting riba-based
business.

(Al-Muwakkil
/ principal)
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4. According to the Shafiis, the object of an agency contract must be

known in order to avoid uncertainty (gharar). However, minor
uncertainty (gharar yasir) that does not result in dispute among the
contracting parties is allowed.
5. The Hanafis view that the object of an agency contract cannot be
the utilisation of public properties such as the collection of wood
from public lands.

2. AL-WAKALAH:
PILLARS OF AND CONDITIONS
The sighah of wakalah requires offer and acceptance.
If A (the principal) says: I authorise you to invest this money
on my behalf, and B (the agent) says: I accept, then the
wakalah contract is concluded.
The acceptance of wakalah is could be in verbal, action,
writing, sign (gesture), etc.
The acceptance can either be done immediately or delayed.

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2. AL-WAKALAH:
TYPES
1. Al-Zuhayli, 2003 (translated):
1. Al-Wakalah in matters pertaining to the right of Allah (legal affairs)
( )
2. Al-Wakalah in matters pertaining to the right of human ( )
2. AAOIFI Shariah Standard: 8 types in 4 categories:
1. Based on Scope of Agency
1. General
2. Specific
2. Based on Payment
1. Paid
2. Non-Paid
3. Based on Bindingness of the parties
1. Binding
2. Non-Binding
4. Based on contract duration
1. Continuous
2. Temporary

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LECTURE 1
In Deposit and Sukuk Products

MODERN
APPLICATIONS
2. AL-WAKALAH:

2. AL-WAKALAH:
MODERN APPLICATIONS
In Letter of Credit

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2. AL-WAKALAH:
MODERN APPLICATIONS
In Takaful Product

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2. AL-WAKALAH:
ISSUES IN IBF
Discuss in Class Tutorial:
Articles Reading: In Group
INSTRUCTION:
1. Read the whole article
2. Answer the following questions:
1. What is/are the issue pertaining to Wakalah in the
article?
2. How the issue could be / is solved?

LECTURE 1

BREAK AND RECAP

AL-WAKALAH
1. Definition

Literal: ?
Technical: ?

2. Legality;

Quranic: ?
Ahadith: ?

3. Pillars

Contracting Parties : ? and their conditions

Object of contacts : ? and their conditions
Ijab Qabul : their conditions

4. Types

1.
2.

Al-Zuhayli: ??
AAOIFI: ??