The application of profit-loss sharing (PLS) contracts in Malaysian Islamic financial industries: Perspectives, challenges and prospects

• Main Authors: Zainol, Zairani, Abdul Jalil, Ahmad Zafarullah, Md Dahlan, Nuarrual Hilal
• Format: Conference or Workshop Item
• Language: English
• Published: 2015
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/17936/1/ICMFE%202015%2053-60.pdf; http://repo.uum.edu.my/17936/

Regardless of the quasi unanimity of Islamic economics and finance scholars on the importance of Mudarabah and Musharakah in the Islamic financial institutions (IFIs), and together with the dominance of the concept of profit-loss sharing (PLS) in the theoretical literature, the allocation of most Islamic funds specifically in Islamic banks is confined to short-term and low-risk investments.This study has been conducted to find the factors leading to the paradoxical differences between what is being idealized and what are being practiced in the Malaysian Islamic finance and banking industry.The findings of this study were based on primary data gathered through interviews with eight (8) Islamic Financial Institutions (IFIs).This study found a number of factors why IFls seem to be reluctant to implement Mudarabah and Musharakah contracts. among them are because of the attitude of the Islamic financial service providers, high level of risks, the role of the bank as fund provider instead of partner or investor, inadequate demand from customers, complexity in implementing the products, stringent regulations and lack of expertise and skilled staff. Based on the findings of this study, several recommendations that can be implemented in order to encourage wider application of Musharakah and Mudarabah contracts by the (IFIs) have been suggested.