This article first appeared in Forum, The Edge Malaysia Weekly on July 17, 2023 - July 23, 2023
The integration of artificial intelligence (AI) into Islamic banking has created extraordinary prospects for the sector in recent years, transforming the industry and benefiting both institutions and clients. Chatbots and virtual assistants driven by AI have transformed client experiences by providing personalised and efficient service.
Mashreq Al Islami Bank offers a good example of this trend. It has partnered with artificial intelligence company
Kore.ai to provide the Bank Assist virtual assistant that enables personalised self-service and faster resolution of customer queries in both Arabic and English.
AI streamlines the compliance process and improves the industry’s integrity by reducing human error, increasing transparency and detecting any non-compliant activity.
An emerging concept is AI-based shariah digital advisory, often referred to as the Robo Shariah Adviser. According to a 2020 report, the Islamic financial services sector is increasingly adopting the Robo-adviser to streamline Islamic financial services and ease shariah supervision activities in Islamic banking and finance.
AI technologies are critical in Islamic finance for effective risk assessment and management. AI enables organisations to spot patterns, predict dangers and optimise risk management techniques by analysing vast volumes of financial data. This data-driven strategy allows for more informed decision-making while reducing risks and ensuring financial stability.
Furthermore, AI-powered investment platforms have enormous potential for establishing shariah-compliant investment processes. AI algorithms are used in these platforms to analyse market movements, economic indicators and shariah standards. For instance, Wahed Invest operates a proprietary digital investment platform using financial optimisation machine learning algorithms that can analyse thousands of shariah-compliant securities worldwide to create portfolios with the highest growth potentials for its clients.
While the prospects for AI in Islamic banking are exciting, there are a number of obstacles and issues to be addressed. One key factor to examine is ethical implications and shariah conformity. Aligning AI systems with shariah principles is critical for providing openness, fairness and accountability in decision-making processes. Addressing concerns about data privacy, prejudice and algorithmic transparency is critical to retaining stakeholders’ trust.
The question arises whether highly advanced AI systems can be held accountable for their actions, particularly when it comes to entering legal contracts. These intelligent machines possess human-like abilities such as conversing, driving and making credit decisions. If an AI system were to make a decision that leads to financial consequences, can it be held responsible?
The use of alternate data in decision-making, particularly for predicting defaults, raises concerns about privacy. It is important to investigate whether such data proxies lead to biased behaviour by lenders, such as excluding specific ethnic or racial groups from loans. AI development should focus on eliminating biases based on factors like ethnicity, race, religion, gender and age.
Another problem is the creation of regulatory frameworks that address the special characteristics of AI in Islamic banking. Regulatory agencies must set norms and standards to oversee the usage of AI while keeping shariah compliance in mind.
This entails creating strong frameworks for data governance, algorithmic accountability, and risk management in AI-powered applications. Hence, AI in Islamic banking opens enormous prospects for industry progress. However, it is critical to address ethical concerns, data protection, human oversight and legal frameworks.
Nurul Amni Irdina is a student at the Faculty of Law and Syariah of Islamic Science University of Malaysia
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