Wakala Bil Istithmar
In one sentenceA contract in which the owner of funds appoints an expert party to invest them for a known fee, with the profit or loss going to the owner of the funds.
Simply put
The agent takes a fixed agency fee (an amount or a percentage of the invested funds) whether the investment makes a profit or a loss, and the remaining profit goes to the owner of the funds. It may be agreed that the agent keeps any profit above an expected level as an incentive.
The agent does not guarantee the capital except in cases of misconduct or negligence. Distinguishing it from Mudaraba helps you when reading investment contracts and recording returns.
Worked example
A company handed 500,000 SAR to an investment firm under Wakala Bil Istithmar for a fee of 1% of the amount (an assumed rate for illustration), and the investment made a profit of 30,000 SAR in the year.
Agent's fee: 500,000 × 1%5,000 SAR
Investment profit30,000 SAR
Net return to the company: 30,000 − 5,00025,000 SAR
Return on the amount invested: 25,000 ÷ 500,0005%
Don't confuse it with
MudarabaIn Mudaraba the mudarib takes only a share of the profit; in Wakala the agent takes a fee that does not depend on a profit being made.