Profit and Loss Sharing In order to understand the fundamental factors that contribute to the lack of profit and loss sharing in Islamic banking, it is first necessary to introduce this mode of financing. The fundamental basis of PLS ​​is equity orientation. This mode of financing allows all parties involved to share both risks and losses in proportion to their individual capital contribution, while profit is allocated based on an agreed ratio. This Islamic banking mode ensures profit or loss sharing and ensures no fixed interest rate, which promotes the efficiency and stability of Islamic banking. According to a leading Sharia scholar, Muhammad Taqi Usmani, “The real and ideal instruments of financing in Sharia are mudarabah and musharakah” (Farooq, 3:1996). MudarabahMudarabah is an alternative in financing in which two parties form a special type of partnership in which one partner provides the capital (rab-ul-mal) while the other individual conducts management operations (mudarib). Any profit generated is allocated and shared according to the agreed ratio determined by Furthermore, if a loss occurs, the financier is the one who bears the loss, keeping in mind that the mudarib was not negligent (Al-Omar, Abdel-Haq, 1996 ). Musharakah Musharakah has some characteristics of joint partnerships. It is a contractual relationship created by the mutual agreement of the parties to share any profits or losses in the joint business activity. This type of financing involves an Islamic bank providing funds, which are mixed with the funds of the business venture and any other operations. Funders are allowed to participate in management, but this is not necessary...... middle of document...... [report] Research Division, Islamic Research and Training Institute. Møller, A. 2013. Where is the problem of adverse selection and moral hazard in Islamic finance? [report] Alternative Financial Institutions.Saeed, A. 1996. Islamic Banking and Interest. Leiden [ua]: Brill. Santomero, A. M. 1997. Commercial bank risk management: A process analysis. Journal of Financial Services Research, 12 (2-3), pp. 83--115. Siddiqi, M. 1983. Interest-Free Banking. Research in Islamic Economics, Volume 1, Number 2.Ul Haque, N. and Mirakhor, A. 1986. Optimal profit-sharing contracts and investments in an interest-free Islamic economy. IMF Working Paper.Visser, H. 2009. Islamic Finance. Cheltenham, UK: Edward Elgar. Warde, I. 1999. The revitalization of Islamic profit and loss sharing. [report] Cambridge: Center for Middle Eastern Studies, Harvard University.