Profitability of Islamic banks

Islamic finance relies on the cardinal principle of profit and loss sharing (PLS) between stakeholders taking part in a risky economic activity. Such a rule is also applicable to Islamic banks' depositors, who either choose not to be remunerated at all, or place their savings in ?investment accounts?, bringing variable returns, dependent on the bank's profitability. At the end of the period, an Islamic bank has to share its ?profits? with the depositors who accepted the investment risk. In fact, such an Islamic bank does not share its ?profits?, defined as the wealth transferred to shareholders, but shares an amount of wealth one can call an ?income before cost of funding? (IBCF). How Islamic banks manage to smooth their profitability, measured by their ROE, is the purpose of this article, which comes to three main conclusions:_x000D_ 1. In theory, an Islamic bank is effectively in a position, thanks to profit sharing, to make its profitability less volatile over the cycle._x000D_ 2. In addition,