Risk sharing is an essential part of Islamic finance. The true test of whether a financial action is really Islamic or not is if it has risk sharing. What that means is that a person has the right to profit only when he takes up the burden of bearing risk.
The principle is derived from the fiqh legal maxim:
“الغنم بالغرم”
“(Entitlement to) profit is accompanied by responsibility"
What risk sharing does is: 1. Minimizes moral hazard (where someone takes on more risks because he knows someone else will bear the cost of those risks). 2. Links finance to the real world and limits the amount of debt created.