This study aims to examine how different Islamic financing structures − markup-based and profit-loss sharing (PLS) contracts − shape wealth distribution, focusing on the structural tension between risk-transfer and risk-sharing mechanisms.
To reach the research objective and to address the limitation of static approach, this research applies an agent-based modeling that simulates a dynamic economy in which heterogeneous agents interact under full PLS and markup-based financing contracts affects wealth distribution. In this regards, wealth distribution emerges endogenously through repeated contractual interactions and adaptive behavior. The data generated from the simulation will be used to examine how different financing contract may affect the wealth distribution.
The results show that PLS-based financing generates a more equitable distribution of wealth compared to markup-based contracts. This outcome is driven by the underlying contractual mechanisms, i.e. PLS distributes both risk and return in accordance with real economic performance, while markup-based financing imposes fixed payment obligations that constrain reinvestment and contribute to wealth concentration over time.
The findings suggest the need for a rebalancing of Islamic financing structures toward greater adoption of risk-sharing arrangements. Regulatory and institutional support may be required to address structural barriers that limit the practical implementation of PLS-based financing.
This study contributes to Islamic finance literature by framing the distinction between markup-based and PLS contracts as a structural tension between risk-transfer and risk-sharing mechanisms, and by providing a dynamic, interaction-based framework to analyze its implications for wealth distribution.
