Academy of Contemporary Islamic Studies

(ACIS)

DIPLOMA IN MUAMALAT
(IC110)

GROUP ASSIGNMENT
(case study)
Prepared by:
MUHAMMAD EUSOFF LUQMAN BIN IZAMUDDIN ( 2020302097 )
ADAM BUKHARI BIN MOHD RAZALI ( 2020525785 )
MUHAMMAD TAUFIQ AQWA BIN ABD HAMID ( 2020357895 )
ZAHID HAZMAN BIN ZULKFFLI ( 2020930881 )

Prepared for:
LECTURER : DR MOHD SABRI
COURSE CODE : IC 110
TITLE : WAKALAH
CONTENT

1. INTRODUCTION

2. DEFINITION

3. ISLAMIC BANK
 THE HISTORY OF ISLAMIC BANK
 THE BACKGROUND OF ISLAMIC BANK
 THE STRUCTURE ORGANIZATION

4. OPERATION WAKALAH IN BANK ISLAM

 THE PROCESS OF PAYMENT OF ZAKAT SAVINGS BY
BANK ISLAM
 WAKALAH APPLICATION IN ZAKAT PAYMENT OF
SAVINGS: A STUDY IN BANK ISLAM (BIMB)
 WAHEED INVESTMENT ACCOUNT OPERATIONS AT
BANK ISLAM
 THE MAIN RISK OF A WAHEED INVESTMENT ACCOUNT

5. CONCLUSION

6. REFERENCES
INTRODUCTION

Wakalah in Islamic law is the transfer of power by one person as the first
party to another as the second party in the matters represented.
Wakalah in Arabic means to help, maintain, delegate, or be a
representative who acts on behalf of the person he represents. In terms
of terminology, wakalah means helping each other in a matter when a
person is not legally capable or has obstacles to do so. The object
represented may involve property and other personal matters, such as
marriage. In civil or criminal cases, for parties using the services of a
syarie lawyer, the Syariah Court Judge shall ensure that the parties have
filed the wakalah of the syarie lawyer accordingly in accordance with the
law. Without a valid wakalah by the parties to Syariah lawyer, the case is
not legally brought by Peguam Syarie. Wakalah occurs when a person
delegates his affairs to another person or when a person takes the place
of another person.

DEFINITION

Wakalah means protection, delegation, or authorization. Specifically,

wakalah refers to a contract in which a person who has complete legal
capacity authorizes another to conclude a certain well‐defined
permissible contract on behalf of that person. An agent (wakil)
establishes contractual relations between a principal (asil/muwakkil) and
a third party. The main purpose of an agency is to facilitate economic
exchanges between a principal and third parties when such exchanges
are hindered by distance, numbers, or when the principal is unable or
unwilling to act personally. The main features of an agency are
representation, the provision of service, and power to affect the legal
position of the principal. The majority of the jurists state that the
contract of wakalah is based on four pillars. They are: the principal
(muwakkil), agent (wakil), subject‐matter of an agency, and by the
parties, which includes offer and acceptance. An agent's authority is
derived and defined by the particular type of agency he undertakes.
Based on the authority of the agent, wakalah can be divided into:
Particular Agency (al‐Wakalah al‐Khaassah), General Agency (al‐Wakalah
al‐’Aammah), Restricted Agency (al‐Wakalah al‐Mu'allaqa), and
Unrestricted Agency (al‐Wakalah al‐Mutlaqah).

THE HISTORY AND BACKGROUND OF ISLAMIC BANK

 THE HISTORY OF ISLAMIC BANK

“The inception of Bank Islam in Malaysia is not a manifestation of the

Muslim people’s pride and haughtiness, or a symbolic attempt to portray
Islam in this country. The formation of Bank Islam is an effort to
demonstrate that Islamic assimilation in our country’s economy shall not
evoke any economic catrastrophe. What is needed here is neither a
‘gesture’ nor ‘symbol’ but the trusted expertise to establish and manage,
which will determine that an Islamic banking system can play its role
successfully in today’s modern economy.”

YAB Tun Dr. Mahathir Mohamad, commerating the official launch of

Bank Islam’s operation in 1 July 1983 / 20 Ramadan 1403H (Friday).

The establishment of Bank Islam can be traced even way

back before World War II where Muslims in the country were already
looking for an alternative financial system that would comply with the
Shariah (Islamic jurisprudence) requirements. It was not until 1969
however that the Pilgrims Management and Fund Board (Lembaga
Urusan dan Tabung Haji or “Tabung Haji”) was established as one of the
first Islamic financial institutions, primarily to encourage savings and
investments among the Muslims and help depositors perform Hajj.

At the international level, the call for the establishment of an

Islamic banking system had been gaining in momentum but it was only
in 1975 that the first Islamic bank was established in Dubai. The bank
was formed after 15 years of extensive research and joint
effort by professional Islamic economists, financiers and officers from
various world Islamic organisations.
 The inception of Bank Islam in 1983 was the culmination of intense
determination, inspired by the Bumiputera Economic Congress in 1980,
followed by a seminar on the Concept of Development in Islam in 1981,
and the tireless efforts of Tabung Haji, PERKIM (a
non-governmental organisation committed to looking after the welfare
of Muslims across the country) and the National Steering Committee for
Islamic Bank (“National Steering Committee”).

Starting with 30 pioneering staff, Bank Islam’s first year of

operation was conducted by its temporary headquarter at the first floor
of Kompleks Jemaah Haji at Subang, Selangor. By the end of its first
financial year, Bank Islam has four (4) operating branches at Kuala
Lumpur, Kuala Terengganu, Kota Bharu and Alor Setar, with 272
employees.

Via the innovative application of Waqf land development, today,

Bank Islam’s headquarter is the pristine Menara Bank Islam, located in
the midst of the ‘Golden Triangle’ of Kuala Lumpur. As at end of 2018,
Bank Islam has more than 140 branches nationwide with a workforce of
more than 4,500.

 THE BACKGROUND OF THE ISLAMIC BANK

Bank Islam Malaysia Berhad is the first Shariah-compliant banking

institution in Malaysia and South East Asia, and has been playing the
leading role in the development of the nation’s Islamic banking industry.
The Bank has provided technical assistance in the setting up of several
Islamic institutions in the world. Today, Bank Islam champions its role as
a value-based intermediary (VBI). Bank Islam, guided by Shariah-based
business principles, is a strong proponent of growing together with the
communities that it serve. VBI is at the heart of our business model, to
deliver a sustainable performance with a strategic focus to support
economic, social and environmental development.

Primarily a retail bank, Bank Islam’s list of offering ranges from

traditional financing and savings product to various solutions exclusively
for individual customers, to banking and financial solutions designed to
fulfil the fast-changing financial needs of customers from all
categories such as investment accounts, wealth management, capital
market, trade finance, project/infrastructure financing, and structured
products. The variety of financial services offered by the Bank has come
a long way since its early days when it acted as the lead arranger for the
world’s first Islamic bond (Sukuk) issuance of RM125 mil in 1990 by Shell
MDS Sdn Bhd.

Bank Islam, through its subsidiary, BIMB Invest, has been

partnering with UK-based Arabesque Asset Management Ltd, in
introducing ESG-compliant global and local equity funds. The Bank was
also the founding member of IAP Sdn Bhd (Investment Account
Platform), an internet-based multi banks platform that was set up to
facilitate channelling of funds from investors to finance viable ventures.
Hence, moving our roles from credit intermediary to investment
intermediary.

A pioneer in the industry, Bank Islam embrace the importance of

innovation and digital banking. The Bank has also established a “Sadaqa
House”, an initiative to promote
social finance activities via a crowd-funding platform, a partnership with
Ethis Crowd. A strong advocator of ethical and responsible financing,
Bank Islam continue to become a catalyst for positive impact growth,
giving the Bank the opportunity to continue to be part of Malaysia’ s
journey to manifest the larger aspirations of Islamic Finance.. In
addition, the Bank has always been committed to corporate social
responsibility, not just by giving back to the community in which it
operates, but the Islamic Finance industry as a whole through
knowledge sharing and becoming the source of reference for the
industry. Bank Islam continues to offer the best and cater to differing
needs of the customers as its strives to uphold its status as the symbol of
Islamic bank in Malaysia.

 THE STRUCTURE ORGANIZATION OF THE ISLAMIC BANK

  THE ORGANISATION CHART

 Board of directors

The board of directors oversees the operations of the bank and is

responsible for supervising the bank’s affairs by exercising effective
corporate governance. The board of
directors governs the bank by setting policies and procedures; it’s
selected by the stockholders and should represent the stockholders’
interests.

It’s also responsible for many high-level decisions and appoints the
bank’s chief executive officer (CEO). This list of duties applies to the
boards of both conventional and
Islamic commercial banks.

 Audit committee
 Each commercial bank creates an audit committee that reports
directly to the board of directors regarding the bank’s financial
reporting, disclosures, and risks. Generally, audit committees in
commercial banks handle the following tasks:

a) Ensure that bank operations comply with industry regulations.

b) Make sure that the day-to-day operations of the business function

according to the company’s internal control policies.

c) Conduct internal audits of the bank to make sure that banking

operations are performed according to specific internal control
procedures and comply with the rules and regulations set by the
governing organization.

 Chief executive officer (CEO)

The CEO of a commercial bank plays a vital leadership role and

reports directly to theboard of directors. The CEO is expected to
mobilize the bank’s funds and utilize them in order to make money. The
CEO also has to make sure that the bank meets standards of
customer service so it can compete effectively in the industry.

 Operational-level management

The operational-level management occupies a lower tier in the

organization chart of a bank. Operational-level management reports
directly to the CEO. The people who make up the operational-level
management team include the operational managers for banking
activities (the chief operating officers) and the departments of finance,
marketing, human resources, legal affairs and compliance, information
technology, and risk management.

Each bank has a compliance department to make sure that the

bank upholds proper market conduct, that customers are suitably
advised, and that the bank serves customers fairly.

 THE SHAREHOLDING STRUCTURE

4.0 Operation wakalah in Bank Islam
Figure 1, illustration of wakalah contract to pay zakat

This study found that, on 2 May 2019, BIMB introduced a new service for
the payment of zakat savings or expenditure using the Wakalah model.
Starting on that day, BIMB began the process of paying zakat for
deposits or deposits on behalf of the depositors. Referring to Figure 1,
this definition of wakalah only exists between the depositor and the
bank where the customer is engaged.

"I hereby appoint Bank Islam as the representative to calculate and pay
zakat on savings and investments for the total savings in my deposit
and / or investment account at Bank Islam only starting this year and
onwards to the zakat management agency (AMZ) below in accordance
with Islamic law and its terms and conditions ** until I terminate this
service by giving notice to Bank Islam '(Aqad wakalah between customer
and BIMB)

Referring also to Figure 1, this wakalah process involves three parties,

namely the customer, the bank and also the zakat collection centre. It
begins as follows: (1) The depositor (muwakil) will agree to the contract
to serve BIMB (representative) as an agent to pay zakat (muwakkal) and
customers will no longer be allowed to pay zakat at the zakat collection
counter. It fulfills the three foundations of the wakalah contract, namely
the aqidan, the muwakil and the wakil, the ma'qud alaih, This is the
matter under contract (paying zakat) and sighah. The depositor
(muwakil) will agree to the arrangement to represent the bank
(representative) as an agent to pay zakat (muwakkal) and customers will
no longer be required to pay zakat at the zakat collection counter.

BIMB would then serve as an agent to the depositors to pay zakat

savings or transaction on behalf of the muwakil to the zakat organization
(muwakkal) chosen by the client. In this definition, BIMB often serves as
a representative for the measurement of the rate or value to be paid by
the depositor or the lender.
The process of payment of zakat savings by Bank Islam

Referring to Figure 2, after BIMB receives the request as a representative

of the client, the bank must verify if the customer agrees with the terms
and conditions laid down in order to comply with the legal specifications
of aqad. The BIMB officer concerned will explain the Wakalah term used
and how to pay zakat savings to customers. If the Customer identifies
with the aqad, the Customer Management System will be managed by
the Officer. For eg, the date on which the customer agrees every 31
October starting from 2019 or the year on which the customer agrees
will automatically determine the savings or investment zakat of the
customer on the basis of the balance method left in the customer's
account on that date.
Both parties have already settled on this calculation between BIMB and
the zakat institution, where the rate of payment of zakat deposits is in
compliance with Islamic law, which is at a rate of 2.5 per cent of overall
savings or expenditure per year. When an application is made, BIMB
customers can choose to pay zakat to the state of their choosing. For
those who work, they are encouraged to contribute to the state zakat
center where they work, while for housewives and pensioners, they can
choose their state of residence or their state of birth. The choice is also
subject to the list provided by BIMB from time to time. Next, as October
31 comes, the machine will automatically determine and if the volume
of savings or investment account is sufficient for the payment of savings
zakat, the deduction process will be carried out by the bank.

4.1 Wakalah application in zakat payment of savings: a study in Bank

Islam (BIMB)

Wakalah is an agreement contract that entails one party providing a

mandate to another party to conduct a certain role as a delegate. In the
modern sense of Islamic finance, clients will typically designate a
financial institution as a representative to carry out a mua'malah
transaction and, in exchange, the financial institution will receive a
service salary.

Use of Wakalah bi al-Istithmar in deposit products:

The Islamic financial institution plans to launch deposit items based on
wakalah bi-istithmar (representative for investment purposes). The
consumer can deposit a certain sum in an Islamic financial institution by
means of this package, provided that this deposit can only be deposited
in an instrument that will offer a return at a certain minimum cost (e.g. 5
percent per annum). Islamic financial institutions can act as agents to
accumulate consumer deposits and are eligible to earn salaries as agreed
by both parties.

However, Islamic financial institutions do not promise that clients can

earn at least the rate of return on investment as anticipated. Investment
risks are entirely incurred by the client until it is known that the Islamic
financial institution has been negligent or compromised the terms of the
arrangement by engaging in an instrument that has no ability to produce
a return of at least 5% per year. In addition, if the customer chooses to
end the investment deal sooner and to deduct all investments, the
customer is only entitled to receive the present value of the investment.

4.2 Waheed Investment Account Operations at Bank Islam

Waheed Investment Account (Wakalah)-In the form of the Waheed

Investment Account (Wakalah), the manager of the investment account,
as a muwakkil or principal, grants the Bank, as its agent for the conduct
of Shariah-compliant investment operations, the power to obtain the
anticipated return on income from such investment. Unlimited
Investment Account-refer to the category of investment account where
investment account holders grant the Bank a license to make a final
investment decision without enforcing any limitations or conditions.

Fund Investment Objectives and fund Investment Strategy:

Fund Investment Objectives is to Generate modest return during the
investment period negotiated. Based on the asset's risk profile.The fund
Investment Strategy is to ensure the investment is completed, the goals
are compatible with the distribution of funds to secure the investment
portfolio. Beside that acquisition by banks in Portfolios of Housing
Finance and Fixed Assets for Purpose Cover the principal and produce
stable returns.

Assessment of Allocated Assets:

The appraisal will be performed on a monthly basis as part of the
decision process Returns back to the investors. The return on this
investment is determined by the efficiency of the assets allocated,
including but not limited to the nature of the assets. (such as impaired
financing) and rate movements Efficient benefit (EPR) related to the
financing of assets dependent on the floating rate system and others.
The principal balance and the return are not assured and the investment
account holders face the possibility of no return. Account These assets
are not covered by the Malaysia Deposit Insurance Corporation (PIDM).
However, the brand has been structured to reduce the probability of the
key failure. In the case of a dilution situation, investment account
holders will be given preference over depositors.

4.3The main risk of a Waheed Investment Account

The Bank will apply risk management measures to portfolio, legal and
operating processes, including asset selection, liquidity alignment with
investment goals and parameters, assessment, performance reporting,
etc. driven by Account Policy BNM Investment. However, Banks can
control the allocation of their assets to protect the investment portfolio,
providing that the investment stays within the investment goals of the
Fund.

among the risks of Waheed Investment Account products (wakalah):

1. Market risk: refers to the possible effects of adverse price

movements (e.g., profit rate, foreign exchange rate or equity
price, if applicable) to the economic value of an asset.
2. Credit risk: refers to the possibility of the Bank failing to meet its
obligations to IAH in accordance with the agreed terms and
conditions.
3. Liquidity risk: refers to losses that may arise from liquidity risks for
the investment account holders that cause smaller returns and
possible lack of capital
4. Operational risk: refers to losses that may occur as a result of
inadequacies or failures of internal processes, employees and
systems or external events
5. Legal risk: When making this investment, the investor must ensure
that he does not violate any laws, regulations, contracts or any
other legal restrictions that apply to the Investor.
6. Currency risk: Currency risk is the risk that applies to investment
account holders who denote their money into the Foreign
Currency Investment Account. Currency fluctuations also have the
potential to have an indirect effect on movement of related
market factors.
CONCLUSION

Islamic banking is a business institution which has special

characteristics different from conventional banking. Islamic banking
users also have different requirements, especially related to the concept
and application wakalah in murabaha financing. Therefore, a
comprehensive study is needed to bring together these three great
concepts that apply wakalah in murabaha financing in Islamic banking in
line with Islamic principles, mechanisms controlling the operation
wakalah in murabaha financing and consumer protection against bank
financing murabaha contract applications wakalah. The need of looking
at this from the perspective of consumer protection because Islamic
banking users is also part of consumers that meet generally weaker
position than traders. Concerned about the weak position of such users
is applicable in all countries. This is due to the tendency of imbalance
between the position of consumers against traders that occur in any
place.

Basically, most of the problems associated with the concept and

application wakalah in murabaha financing in Islamic banking because of
lack of understanding and awareness of consumer rights for real. It is
also caused by an inaccurate perspective in view of users, because not
using an integrated approach to Islamic banking between compliance
with the principles of sharia, Islamic banking operations oversight
mechanisms and consumer protection. This has led to confusion
continued.

Harmonization of legal approaches used to find harmony

between the rights of users of Islamic banking that is set up provisions in
existing legislation with the philosophy of Islam is correct. Some of the
legislation relating to the rights of bank users, in particular with regard
to the application wakalah in murabaha financing a
number of provisions that are not in harmony with the philosophy of
Islamic banking. Therefore, it is necessary to harmonize efforts to re-
provision.

REFERENCES

https://onlinelibrary.wiley.com/doi/10.1002/9781119198956.ch4

http://jksnpp.penang.gov.my/index.php/soalan-lazim/60-apakah-yang-
dimaksudkan-dengan-wakalah

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https://www.bankislam.com/corporate-info/resources/our-history/

http://www.mifc.com/index.php?
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https://www.dummies.com/personal-finance/islamic-finance/compare-
the-structures-of-commercial-and-islamic-banks/

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