Use of Artificial Intelligence in Market Risk Mitigation in Islamic Banking (Maliki Interdisciplinary Journal)

Summary

• The paper presents a literature review analyzing national journals on how artificial intelligence strengthens market risk management and operational efficiency in Islamic banking [p.1].p.1
• Artificial intelligence is identified as an important driver of risk governance and service efficiency in Islamic financial institutions during the Society 5.0 era [p.2].p.2
• Market risk in Islamic banking arises from asset value fluctuations, macroeconomic shifts, and price movements in financial instruments [p.2].p.2
• Islamic banks encounter specific structural constraints in managing market risk because conventional risk mitigation instruments cannot always be used under Sharia principles [p.3].p.3
• AI systems enable continuous real-time processing of transaction data and automated detection of potential loss patterns without human fatigue [p.4].p.4
• Core applications of AI in Islamic banking include market analysis, financing risk assessment, unusual transaction pattern detection, and customer chatbot automation [p.4].p.4
• Key operational challenges in deploying AI include data quality issues, high implementation costs, human resource readiness, and security concerns [p.5].p.5

Key insights

1. Artificial intelligence improves decision-making speed and precision in Islamic banking by identifying risk patterns across massive datasets [p.1].p.1
2. AI implementation in financing systems accelerates risk identification while reducing potential losses for Islamic financial institutions [p.2].p.2
3. Ethical and governance rules require AI to serve as an assisting tool rather than a complete substitute for human judgment in Sharia-compliant institutions [p.2].p.2
4. Managing market risk in Islamic banks requires adaptive digital strategies due to restrictions on standard conventional hedging tools [p.3].p.3
5. Real-time continuous monitoring provided by AI helps Islamic banks respond immediately to rapid market volatility [p.4].p.4
6. Operational cost reductions achieved through automated customer service indirectly support the overall financial stability of Islamic banks [p.4].p.4
7. Inaccurate or low-quality data inputs pose significant operational risks by producing flawed AI analytical output [p.5].p.5
8. AI utilization complies with Islamic principles when designed to protect assets, prevent loss, and maintain fairness and transparency [p.5].p.5