APPENDIX ANominate Contracts Employed as a Basis for Shari'ah-Compliant Financial Transactions

WAKALA

Wakala is an agency relationship between the wakeel (agent) and muwakil (principal) whereby the wakeel will invest the muwakil's funds in certain Shari'ah-compliant assets. The wakeel is entitled to a fee for their services and, in addition, any profit made above an agreed profit rate to be paid to the muwakil may also be paid to the wakeel as an incentive fee pursuant to the term of a wakala agreement.

MUDARABA

Mudaraba is a partnership between two or more parties where one party (the mudarib) is the active partner who contributes their effort and management skills but no capital, while the other party or parties – the sleeping partner(s) – contribute(s) capital. The parties may share profits, but losses can only be borne by the capital provider. A mudaraba contract can be for any period of time, at the end of which the contract is liquidated. The capital provider is not entitled to claim a fixed amount as profit, although the percentage of the profit payable to the capital provider is stipulated in the financing agreement. Accordingly, there should be no guaranteed return for the investors with this type of financing.

MUSHARAKA

Musharaka is a partnership between two or more parties with each partner contributing to the capital of the joint venture (in cash or in kind). The capital is invested in a Shari'ah-compliant manner with profits resulting from the venture being ...

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