F. A. Al Maddah ‘Islamic finance and the concept of proﬁt and risk sharing’Fatemah A. Al Maddah
MEJELSD, Vol. 1, No. 1, 2017.
Legal Advisor, Jeddah, Saudi Arabia
This paper introduces Islamic partnership
structures as an alternative to conventional debt contracts. It
speciﬁcally addresses the situation of entrepreneurs seeking funding
from banks. The Islamic principle of proﬁt and risk sharing, emphasised
in Islamic partnership structures, is discussed in detail as it replaces
the phenomenon of risk transfer present in most conventional ﬁnancial
and banking products. This paper explores two of the commonly used
Islamic partnership structures; the Mudarabah and Musharakah structures.
The paper explains how these structures beneﬁt the ﬁnanciers as well as
entrepreneurs as both parties share in the risks and proﬁts of the
enterprise and hence both their interests are aligned. In addition to
the ﬁnancial and economic impacts of the principle of proﬁt and risk
sharing, the paper explores its important role in achieving
The paper is developed based on the secondary sources and literature review.
Findings: The paper concludes that Islamic partnership
structures aim at incentivising the bank and the entrepreneur to
cooperate with each other to increase their wealth and avoid losses and
they can hence minimise the disadvantages of conventional interest-based
Originality/Value of the Paper
The paper assists the entrepreneurs of stage 1 or 2 in understanding the sources of Islamic ﬁnance and its implications.
Research Limitations/Implications: The paper is aimed at assisting the entrepreneurs seeking equity.
Islamic Finance; Shariah Finance; Risk Sharing; Islamic Banks
Reference to this paper should be made as follows: F.
A. Al Maddah (2017) ‘Islamic Finance and the Concept of Proﬁt and Risk
Sharing’, Middle East Journal of Entrepreneurship, Leadership and
Sustainable Development, Vol. 1, No. 1, pp.89-95.
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