what is profit and loss sharing ?

PROFIT AND LOSS SHARING :


PROFIT AND LOSS SHARING (PLS) is a financial mechanism linking finance capital to industry and commerce without the use of interest. In other word we can say PLS is a method used in Islamic banking to comply with the prohibition of interest. It suggests an equitable sharing of risks and profits between the parties involved in a financial transaction.

so what make it different from conventional ?

CONVENTIONAL
interest is charged even if the person suffer from losses. Therefore, it is not based on profit and loss sharing.
 ISLAMIC BANKING
Islamic bank operates on the basis of profit and loss sharing. In case, a person suffered from losses, the bank will share these losses based on Islamic model of finance such as Mudarabah and Musharakah


  • PLS is expected to operate with the borrowers assuming the entrepreneurial role of innovation and control.
  •  The lenders  will be providing the guarantee. 
  • Since bearing uncertainty (socially productive enterprise) is considered productive activity in Islam, the profit-share of the lender in his role of the guarantor would be legally justified.

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