Abstract
In spite of the momentous growth of Islamic banking, the equity-based financing, "Mudarabah"(trustee partnership), the most pioneer product of Islamic banking, is still in its infancy. It is evident from the literature that the implementation of Mudharabah based financing is very less compared to other modes of financing. Therefore, this study is conducted to investigate the hindrance factors of Mudarabah financing. After the literature review, qualitative research methods applied to study the effect of Moral Hazard, Operational Difficulties andRisk factors. The findings showed the inverse relation between Mudarabah growth and operational difficulties, signifying that as operational difficulties increased managers discouraging customers not to adopt Mudarabah financing as their first choice. Risk Factors and morals hazards also show the inverse relationship. Findings of the study have practical implications for financial institutions, practitioners, policy makers, and customers. 
Highlights
It is evident from last few decades Muslims are trying to reconstruct and organize their lives according to Islamic principles and Shariah guidelines
Lack of technical staff accustomed to the Islamic system and have inadequate knowledge to improve the application of the ethical and social values of the system. Based on these arguments it is proposed that operational difficulties are a critical factor in the growth of Mudarabah financing. 3.2.2 Moral Hazard The term Moral Hazard has its roots in the 17th century when it was widely used by Insurance companies by the British insurance industry
While assessing the merits and demerits of conventional and PLS banking it is evident that the PLS banking is the better option than the conventional banking even in the presence of Moral Hazard (Rajash & Tarik, 2000)
Summary
It is evident from last few decades Muslims are trying to reconstruct and organize their lives according to Islamic principles and Shariah guidelines. In operational difficulties managers discouraging customers not to adopt Mudarabah mode of Islamic financing, which in turn lead to the poor growth of Mudarabah financing Some of these problems include accounting problems, monitoring cost, assessment of projects, lack of managerial skills of Islamic banking staff etc. Lack of technical staff accustomed to the Islamic system and have inadequate knowledge to improve the application of the ethical and social values of the system Based on these arguments it is proposed that operational difficulties are a critical factor in the growth of Mudarabah financing. One type of operational risk is Shariah non-compliance risk in which occurs due to the nullification of contracts and as a result, the Islamic Financial Institutes face the financial losses, in Profit sharing contracts like mudharabah and musharakah contracts while allocating the profit based on the expected return (Rosly et al 2013). Another reason for operational risk may the incompatibility of an accounting system that to fit the framework of Islamic contracts (Safa 2013). 3.4 Theoretical Framework
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