Formulating the Profit and Loss Sharing Model (PLS) and its Impact on Economic Activity in the Islamic Economy

Abstract

This study aims to develop a methodological framework for the Islamic economics model through the formulation of the profit and loss sharing model (PLS), using the development in theoretical and mathematical methods of traditional economics, by replacing the interest rate with the rates of return on participation, and using the inflation rate as a rate to discount investment returns, loans, and stock returns. This includes reformulating the concepts of present value, the marginal sufficiency rate of investment, and formulating a model for profit and loss sharing (PLS) that ensures that the central bank controls monetary policy and economic activity and redistributes economic resources more efficiently than when adopting the interest rate.