Determination of Profit and Loss Sharing Ratios in Interest-Free Business Finance

Abstract

This paper discusses how profit and loss sharing ratios will be determined at the micro and micro levels in an interest free system of financing business operating side by side of an interest based conventional financing.It shows that leverage magnification of return on owners' equity is also available under the Islamic financing. It argues that for the bank Islamic finance may be more profitable than conventional financingProfit sharing; macro level model; mico model; leverage effects; relative profitability