Wakalah bil-istithmar (investment agency)
Investment agency: the agent invests the principal's funds for a fee, and the profit or loss belongs to the principal.
Wakalah bil-istithmar is an agency contract for the purpose of investment, as Bank Negara Malaysia's glossary puts it. The agent invests the principal's funds for an agreed fee, and the investment's profit or loss belongs to the principal, subject to the agent's liability for misconduct or negligence. The agent may also be allowed an incentive above an expected return, and AAOIFI has a dedicated accounting standard for investment agency.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
WakalahAgency: one party appoints another to act on its behalf, with or without a fee.MudarabahA partnership of capital and work: profit is shared by an agreed ratio, while financial loss falls on the capital provider.Interbank investment wakalahAn interbank placement in which one bank invests another's funds as agent for a fee, targeting an expected but not guaranteed profit.Investment account holderA customer who places funds in an investment account and shares in its returns and risks, rather than holding a deposit claim.