Profit and Loss Sharing (PLS) as Basis Characteristic of Islamic Banking: An Analysis of Mudharâbah Contract

Mudhârabah constitutes one of the products in Islamic banking. It is a cooperation contract between two parties, where one party (rabbul mâl) provides 100% fund and other (mudhârib) provide work. Profit will be shared between two parties according to a pre-determined profit sharing ratio contract known as nisbah. In the case of loss, the capital owner shall bear the monetary loss and manager or entrepreneur shall loose the reward of his effort unless caused by negligence or violation by mudhârib. This is core concept of mudhârabah, which gives fair business cooperation between two parties. This study will explore basis characteristics of mudhârabah in Islamic banking. The findings are that Islamic banking has certain basic characteristics from PLS such as as just system, as tool of efficient allocation of capital, as productive contract that support who have business either micro, middle or macro level, and as medium to reach the objecticve of Islamic economics.