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Challenges and solutions for Mudarabah financing: an exploratory study of Islamic banks in Palestine.

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Bibliographic Details
Title: Challenges and solutions for Mudarabah financing: an exploratory study of Islamic banks in Palestine.
Authors: Abdeljawad, Islam, Rashid, Mamunur, Mari, Thabet, Salameh, Dyaa
Source: Journal of Banking Regulation; Dec2025, Vol. 26 Issue 4, p958-971, 14p
Subject Terms: ISLAMIC finance, EMPLOYEE training, PROBLEM solving, ORGANIZATIONAL transparency, PALESTINIAN history, BLOCKCHAINS, THEORY of constraints
Geographic Terms: PALESTINE
Abstract: 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, further restrict adoption. To address these issues, the study recommends enhanced employee training, creation of comprehensive client databases, phased fund disbursement, and the adoption of blockchain technology to improve transparency and compliance. While the study focuses on the Palestinian context, the insights offer broader implications for Islamic finance in similar environments. This research contributes to the literature by identifying specific barriers to Mudarabah and offering actionable strategies to promote its effective use. Implementing these measures could help Islamic banks better fulfill their ethical mandates and support inclusive economic development. [ABSTRACT FROM AUTHOR]
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Database: Complementary Index
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Abstract: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, further restrict adoption. To address these issues, the study recommends enhanced employee training, creation of comprehensive client databases, phased fund disbursement, and the adoption of blockchain technology to improve transparency and compliance. While the study focuses on the Palestinian context, the insights offer broader implications for Islamic finance in similar environments. This research contributes to the literature by identifying specific barriers to Mudarabah and offering actionable strategies to promote its effective use. Implementing these measures could help Islamic banks better fulfill their ethical mandates and support inclusive economic development. [ABSTRACT FROM AUTHOR]
ISSN:17456452
DOI:10.1057/s41261-025-00297-8