KSA عربي
KSA عربي
Global عربي
The role of commission is crucial in Islamic financial institutions. There are different types of services offered by Islamic financial institutions under the commission (Wakalah) contract.
There are various avenues where the client or individual does not have direct access, so the client nominates an institution to perform certain obligations on their behalf. Different products are structured under the Wakalah contract, and the institution earns through the agency fee.
Islam allows performing any act on behalf of someone else, as mentioned in the Holy Qur’an:
“...So send one of you with this silver coin of yours to the town, and let him find out which is the good lawful food...”
The permissibility of agency by Shari’ah is demonstrated in this verse, as the one who was sent to the town to buy food acted as the agent of the others.
In the Sunnah, a Hadith narrated by ‘Urwah Al-Bariqi (may Allah be pleased with him) states that the Prophet (peace be upon him) gave him one dinar to purchase a sacrificial sheep on his behalf—an incident that clearly involves agency.
The permissibility of paid agency (commission) arises from the fact that an agent performs an important act for which he has the right to seek remuneration. An agent who provides services in return for a fee is therefore entitled to receive such remuneration.
Read more about: How Riba Differs from Trade?
The commission in the financial transactions refer to the amount earned by the financial institution or individual for providing different services or facilitating a transaction, such as executing trades, managing and arranging financial deals for the clients.
These are the fees charged by financial institutions for providing administrative or other banking services, such as account maintenance, documentation, and credit assessment for letters of credit (LCs), etc.
From a Shariah perspective, only the actual costs incurred by the institution for the services performed should be charged. Such fees should not be linked to, or constitute part of, any non-compensatory contracts like guarantees, etc.
These are the fees charged by financial institutions for acting as an agent or broker (Wakeel) on behalf of an individual or another institution. This type of agency service commonly occurs in the subscription, purchase, or sale of shares of Shariah-compliant companies. From a Shariah perspective, such fees are also permissible, as the broker receives remuneration in return for the services provided.
Read more about: Comparing Arbūn and Down Payment
This type of fees comes under the service fee. The financial institutions charge this fees for providing the ATM services, cheque book and other services related to the account.
From a Shariah perspective it is allowed for the Islamic financial institution to charge a membership fee, annual fee and renewal fee.
For the detail of each specific account please refer to the AAOIFI shariah standard
Remuneration for agency services may be either fixed or linked to the agent’s performance on a percentage basis. However, if the compensation is tied to actual profit generation in a participatory mode such as Mudarabah, it must be fixed and agreed upon at the beginning of the contract.
There are different types of contracts where the commission arises under the agency agreement. The most common among them are:
- Wakalah based investment account: Where the institute act as an agent for the individuals and invest the amount for different individuals for a fixed fee.
- Takaful: Where the operator act as an agent of different participants and managing their fund against the service or management fee.
- Brokerage fee: Where the agent earns for selling or purchasing of different Shariah-compliant share on the behalf of client.
- Murabaha or Ijarah management fee: Where the institution earns for purchasing assets on the behalf of the client.
- Letter of credit LC: The bank arrange the over all process for the letter of credit and charge the client for the actual cost incurred.
- Investment and fund management services: Where the institution manages the funds and earns a profit for providing management services.
If the contract is Shariah-compliant and all the terms and conditions related to the agency agreement are fulfilled, then the commission and delegation to perform such a contract are permissible from a Shariah perspective.
In contrast, if the contract is Shariah-noncompliant, or if the contract itself is permissible but the terms and conditions of the agency agreement are not fulfilled, then the delegation for such a contract is not permissible from a Shariah perspective.
Yes, it is allowed to pay or receive the commission for the online payment or app, because it is a type of service, and the commission for the services are permissible.
Read more about: Hawalah in Islamic financial institutions
References:
(1) https://aaoifi.com/ss-40-distribution-of-profit-in-mudarabah-based-investment-accounts/?lang=en
(2) [Al-Kahf (The Cave): 19].
3) Related by Al-Bukhari, Abu Dawud and Al-Tirmidhi: “Al-Talkhis Al-Habir” [3: 304].
(4) “Nayl Al-Awtar” [5: 352]; “Fath Al-Qadir” by Ibn Al-Humam [6: 554]; “Al-
Mughni” by Ibn Qudamah [5: 203]; and “Al-Bahr Al-Zakhkhar”.
(5) https://aaoifi.com/ss-23-agency-and-the-act-of-an-uncommissioned-agent-fodooli/?lang=en
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
