In the conventional model described here, capital may receive a fixed return while the entrepreneur takes the residual profit. Islamic finance links commercial capital with the risk of the business.
Because the investor bears relevant risk, he may share in actual profit. This can also spread commercial profit more widely to people whose savings are pooled through financial institutions.
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The Foundations of Islamic Economic Thinking
In the conventional model described here, capital may receive a fixed return while the entrepreneur takes the residual profit. Islamic finance links commercial capital with the risk of the business.
Because the investor bears relevant risk, he may share in actual profit. This can also spread commercial profit more widely to people whose savings are pooled through financial institutions.