The issue of principal-agent in sale-based transactions from the Shariah perspective
Joint Authors
Bin Harun, Muhammad Nasir
Ellias, Muhd Ramadhan Fitri
Muhammad, Mohd Faysal
Source
ISRA International Journal of Islamic Finance
Issue
Vol. 6, Issue 2 (31 Dec. 2014), pp.117-131, 15 p.
Publisher
International Shari'ah Research Academy for Islamic Finance
Publication Date
2014-12-31
Country of Publication
Malaysia
No. of Pages
15
Main Subjects
Economy and Commerce
Financial and Accounting Sciences
Religion
Islamic Studies
Topics
- Banks
- Islamic jurisprudence
- Islam
- Financial transactions
- Sales
- Contracts
- Capital
- Islamic World
- Perillous saale
- Religious aspects
- Customers
- Shariah censorship
- Partnerships
- Transactions
- Financial services industry
- Agency(Law)
- Islamic Banks
- Conflict of interests
Abstract EN
Proper operational execution of underlying Shariah principles applied in Islamic banking products is essential to ensure their validity and compliance with the Shariah.
However, more often than not, the customers of Islamic banks expect more simplified processes when it comes to execution of a contract.
Among the solutions introduced by Islamic banks is the adoption of wakalah (agency) in the execution of the contract whereby the bank, as the seller in a sale-based transaction, concurrently acts as the buyer on behalf of the customers.
This exercise may lead to criticism as the bank assumes two roles at the same time—that of principal (muwakkil) as well as agent (wakil) on behalf of the customers.
This brief paper aims at discussing the potential Shariah issue which may arise from such a practice—particularly, the issue of conflict of interest when the bank acts both as principal and agent to the transaction.
The paper begins by first examining the concept and requirements of the wakalah contract; thereafter it delineates the jurists’ opinions on the principal-agent acting as both principal and agent to a transaction; and it finally provides an analysis of the issue in the context of the contemporary Islamic banking practice.
In particular, the paper is of the view that in Islamic banking practice the issues of conflict of interest, moral hazard or potential manipulation of the price, whereby the Islamic bank can favour itself, are eliminated by the strict supervision and regulation set by the authorities that require, among others, independent Shariah control such as Shariah audit.
The measures adopted by Islamic banks in eliminating the issue of jahalah (unknown element) in the contract execution also provide sufficient ground for rendering this practice permissible in Islamic banking transactions.
American Psychological Association (APA)
Ellias, Muhd Ramadhan Fitri& Bin Harun, Muhammad Nasir& Muhammad, Mohd Faysal. 2014. The issue of principal-agent in sale-based transactions from the Shariah perspective. ISRA International Journal of Islamic Finance،Vol. 6, no. 2, pp.117-131.
https://search.emarefa.net/detail/BIM-717867
Modern Language Association (MLA)
Ellias, Muhd Ramadhan Fitri…[et al.]. The issue of principal-agent in sale-based transactions from the Shariah perspective. ISRA International Journal of Islamic Finance Vol. 6, no. 2 (Dec. 2014), pp.117-131.
https://search.emarefa.net/detail/BIM-717867
American Medical Association (AMA)
Ellias, Muhd Ramadhan Fitri& Bin Harun, Muhammad Nasir& Muhammad, Mohd Faysal. The issue of principal-agent in sale-based transactions from the Shariah perspective. ISRA International Journal of Islamic Finance. 2014. Vol. 6, no. 2, pp.117-131.
https://search.emarefa.net/detail/BIM-717867
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references : p. 31
Record ID
BIM-717867