Profit and loss sharing ties the financier’s return to business outcomes instead of a fixed interest schedule. Classic Islamic partnership contracts are built this way, and some development programmes use similar ideas in conventional packaging.

Key takeaways

  • Upside sharing is easier to agree than true downside sharing, which needs strong accounting trust.
  • Asymmetric information makes pure PLS harder for banks than fixed-return trade finance.
  • Governance, audits, and clear loss rules determine whether the label matches reality.
  • Equity-like risk means expected returns should be higher than safe deposits when the venture is risky.