Mudarabah, a profit-and-loss sharing partnership where one party provides capital and the other manages the business, is underutilized in Islamic banking despite its alignment with Shariah principles. This study explores the challenges limiting Mudarabah financing in Palestinian Islamic banks and proposes practical strategies to enhance its application. Using a qualitative approach, in-depth interviews with key bank executives were conducted to investigate internal, client-related, and regulatory barriers. The findings indicate that Mudarabah’s limited use stems from internal constraints such as inadequate staff training and expertise in Islamic finance, and external issues including clients’ lack of verified financial records and economic transparency, raising concerns of moral hazard. Structural challenges within Mudarabah contracts, such as limited bank oversight, monitoring difficulties, and the agency problem …

Title

Journal of Banking Regulation

Publisher

Springer

Publisher Country

United States of America

Indexing

Thomson Reuters

Impact Factor

1.5

Publication Type

Both (Printed and Online)

Volume

26

Year

2025

Pages

958–97