Banks may raise funding through Profit Sharing Investment Accounts (PSIA) using, for example, Mudarabah and Wakalah contracts. In a Mudarabah arrangement, the bank acts as the Mudarib and the fund providers as the Rabb-ul-Mal, otherwise called Investment Account Holders (IAH). In a Wakalah arrangement, the bank acts as a Wakeel for the IAH.

Mudarabah contracts entail the sharing of profits between the contracting parties using a pre-agreed profit sharing ratio. IAHs are liable to bear losses arising from the investments managed by the bank except in case of proven fraud, negligence, misconduct or breach of contract.

Being an equity-based contract, IAH are expected to bear the credit risk of any counterparty to whom the funds are invested with as well as the market risk of the assets in which the funds were invested.

Banks may also in practice use profit smoothing techniques to mitigate against withdrawal risks associated with PSIAs. Profit smoothing can include the creation of reserve accounts such as the Profit Equalization Reserve (PER) and the Investment Risk Reserve (IRR) as per the discretion of the bank.