The Game-Changing Revolution: How AI is transforming Islamic banking

With the advent of AI, Islamic banks are becoming more efficient and more receptive to customer demands

Published: Wed 18 Oct 2023, 2:44 PM

With the emergence of artificial intelligence (AI), the world is rapidly changing especially after the introduction of ChatGPT and Bard. Islamic banking too is not averse to this change, with many banking institutions adopting AI to provide personalised Islamic products and services. Islamic banking is no long constricted, but rather through AI, is becoming more efficient, transparent and accessible to the masses.

In this article, we explore how the introduction of AI is revolutionising Islamic banking and changing the game.

How AI is changing Islamic banking

AI is undoubtedly disrupting conventional banking regimes. With the advent of AI, Islamic banks are becoming more efficient and more receptive to customer demands. For instance, First Abu Dhabi Bank has implemented a portal for merchants equipped with AI and Machine Learning capabilities, enabling advanced data analytics. Additionally, Emirates NBD has entered into a partnership with Copilot X to enhance coding efficiency and streamline the software development process.

Other ways AI is making Islamic banking more efficient are:

Personalised banking - Through behaviour analysis, AI can provide more intuitive suggestions for products and services.

Customer service - While chatbots have been around for a while, the current chat functionalities exceed the previous versions as the answers have become more humanoid than android.

Automating processes - With the capabilities of machine learning, AI can predict your risk adversity to investments along with screening investments to see if they comply with Sharia.

Risk management - Through big data analysis, Islamic banks are able to identify, assess and mitigate potential risks.

Fraud detection - Through pattern analysis, fraudulent transactions can be minimised as AI can catch unusual activities in the banking system.

The benefits of AI for Islamic banking

While human personnel are necessary to provide the emotional aspect to customers, AI can work behind the scenes to maximise customer experience. From the banking standpoint, some of the main benefits of AI in Islamic banking are:

Reduction in operational cost and management

Improved customer relations

Faster detection of frauds

Ease of regulatory compliance

Improving loan and crediting process

Automation in investment planning

The challenges of AI for Islamic banking

Adoption of Islamic banking AI aligns with customer demands for more integration of advanced technologies within the banking system. While the move is certainly forward thinking, banks are facing challenges for AI in Islamic banking such as:

Initial cost of setting up the AI environment.

Finding talent who are experts in AI and Machine Learning technologies and understand the core Islamic banking values.

Minimising AI biasness emerging from human interactions during the learning stage.

Ensuring AI in Islamic banking complies with Sharia principles and ethical guidelines.

Combatting customer mistrust on data privacy protocols and security.

Conclusion

While AI offers enhanced efficiency and transparency in delivering products and services, it brings forth certain challenges. If Islamic banking aims to genuinely cater to a wider audience, it is imperative to address these challenges. This necessitates the implementation of innovative strategies for seamlessly integrating AI into the Islamic banking framework, thereby establishing a more dynamic and practical banking solution. By wholeheartedly embracing AI technology, Islamic banks can elevate their operational efficiency, elevate the quality of customer service, and provide a broader range of competitive products and services.