Al-Wakalah Bi Al-Istithmar (Investment Agency) — practice questions

Correct answer: D. Clauses 4/1 and 4/2: Investment agency contracts, whether remunerated or not, are binding on institutions because they are invariably fixed-term contracts in which both parties agree not to terminate within a specified period. Where the parties have so agreed, the contract may still stipulate a right for one party to terminate unilaterally in specific circumstances. This differs from the general rule in Shari’ah Standard No. (23) that agency is basically non-binding.

Correct answer: A. Clauses 5/1 to 5/4 and 6/5: The agent’s fee must be a fixed amount or a percentage of the amount invested; it may be linked to a known index for subsequent periods after the first period’s fee is determined, but must be capped and floored. The agent may additionally be entitled to all or part of any profit above the expected profit as a performance incentive. Otherwise, all profit belongs to the principal; a share of total profit would be Mudarabah, not agency.

Correct answer: C. Clause 6/2: The principal is responsible for expenses related to the investment, such as transportation, storage, taxes, maintenance and insurance. It is not permissible to require the agent to pay them from its own funds, to defer reimbursement of amounts it paid on the principal’s behalf, or to make reimbursement subject to the investment yield. The agent, as a legal entity, bears the expenses of its own employees and equipment.