---
title: "What is Profit equalisation reserve? | IslamicOpenFinance™"
description: "An amount set aside from mudarabah income to maintain a level of return for investment account holders and the bank over time."
url: https://islamicopenfinance.com/glossary/profit-equalisation-reserve/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Prudential regulation](https://islamicopenfinance.com/glossary/#prudential)

Prudential regulation

# Profit equalisation reserve

An amount set aside from mudarabah income to maintain a level of return for investment account holders and the bank over time.

The profit equalisation reserve is the amount appropriated out of mudarabah profits in order to maintain a certain level of return on investment for the mudarib and unrestricted investment account holders, in the IFSB-23 definition. IFSB-30 notes that it is appropriated before the mudarib's share is allocated. It smooths returns across periods, so its policy and any transfers must be disclosed to account holders.

## Sources

- [IFSB-23 Revised Capital Adequacy Standard (Banking Segment), 2021: Definitions, Profit equalisation reserve](https://www.ifsb.org/wp-content/uploads/2023/10/IFSB-23_En.pdf)

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

## Related terms

[**Investment risk reserve** An amount set aside from investment account holders' profit, after the bank's share, to cushion their future investment losses.](https://islamicopenfinance.com/glossary/investment-risk-reserve/) [**Displaced commercial risk** Pressure on an Islamic bank to give up part of its own profit so investment account holders earn a competitive return.](https://islamicopenfinance.com/glossary/displaced-commercial-risk/) [**Unrestricted investment account** An investment account whose funds the bank may invest at its discretion and commingle with its own in a pooled portfolio.](https://islamicopenfinance.com/glossary/unrestricted-investment-account/) [**Profit allocation (investment accounts)** The method for dividing a pool's income between the bank and investment account holders, including reserves and weightages.](https://islamicopenfinance.com/glossary/profit-allocation/)

**Prudential regulation**

1. [Capital adequacy (Islamic banks)](https://islamicopenfinance.com/glossary/capital-adequacy/)
2. [Displaced commercial risk](https://islamicopenfinance.com/glossary/displaced-commercial-risk/)
3. [Investment risk reserve](https://islamicopenfinance.com/glossary/investment-risk-reserve/)
4. [Alpha factor](https://islamicopenfinance.com/glossary/alpha-factor/)
5. [Islamic deposit insurance](https://islamicopenfinance.com/glossary/islamic-deposit-insurance/)
6. [Rate of return risk](https://islamicopenfinance.com/glossary/rate-of-return-risk/)
7. [Fiduciary risk](https://islamicopenfinance.com/glossary/fiduciary-risk/)
8. [Institutions offering Islamic financial services (IIFS)](https://islamicopenfinance.com/glossary/institutions-offering-islamic-financial-services/)

[All 221 terms](https://islamicopenfinance.com/glossary/)