Profit sharing ratio
The agreed split of profit between partners, expressed as a ratio of actual profit, never as a fixed sum or a share of capital.
The profit sharing ratio is the proportion in which profit is divided between the parties to a mudarabah or musharakah. Bank Negara Malaysia defines it as the ratio in which profits are shared between the rabb al-mal and the mudarib. It must be agreed at the outset and expressed as a share of actual profit, since a fixed sum or a percentage of capital would guarantee a return and defeat the partnership.
Sources
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
MudarabahA partnership of capital and work: profit is shared by an agreed ratio, while financial loss falls on the capital provider.MusharakahA partnership in which each partner contributes capital; profit is shared as agreed and loss in proportion to capital.Profit allocation (investment accounts)The method for dividing a pool's income between the bank and investment account holders, including reserves and weightages.Rabb al-malThe capital provider in a mudarabah, who funds the venture, shares profit by the agreed ratio and bears financial loss.