An analysis of risk sharing in Islamic finance with reference to Pakistan (Ph.D. Thesis)

The payment of profits earned on the basis of market performance, as an alternative to interest rates, has been a legally valid development that has allowed for the establishment and successful operation of many Islamic financial institutions. The profit and loss sharing (PLS) principle has served as the foundation for Islamic finance theory, and is the basis for participatory Islamic financial contracts. In practice, Islamic finance does not conform to this theory and overwhelmingly relies on the mark-up principle that underlies deferred trade. The causes of mark-up practices in Islamic finance are determined by examining the preferences of users and suppliers of funds. This study also analyzes the prospects of financial Islamization in a real world scenario in which most Muslim countries rely substantially on foreign financial resources. The prospects for growth in Islamic finance, under current market conditions, lies in the integration of the merits of mark-up and PLS, and in the