Lack of profit loss sharing in Islamic banking: management and control imbalances

An imbalance between management and control rights is attributed as a major cause of lack of profit loss sharing (PLS) in the practice of Islamic finance. Given this dichotomy, agency problem are accentuated, which may put the PLS at a disadvantage as compared to other modes of financing. However, there is no theoretical evidence indicating that PLS is inherently inefficient. In certain circumstances PLS serves an essential economic function.