Harnessing the Power of Artificial Intelligence and Machine Learning in the Islamic Capital Market: A Comprehensive Analysis

Harnessing the Power of Artificial Intelligence and Machine Learning in the Islamic Capital Market: A Comprehensive Analysis

Tripti Pal, Mohammad Irfan, Syed Ahmad Chan Bukhari, Salina Bt. Kassim
Copyright: © 2024 |Pages: 10
DOI: 10.4018/979-8-3693-1038-0.ch006
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Abstract

This chapter explores the transformative impact of artificial intelligence (AI) and machine learning (ML) technologies on the Islamic Capital Market (ICM). As the global financial landscape evolves, the ICM is no exception, facing challenges and opportunities alike. AI and ML have emerged as pivotal tools for enhancing efficiency, mitigating risks, and fostering innovation within Islamic finance. The chapter begins by providing a comprehensive overview of the Islamic financial principles and the unique features of the ICM. It then delves into the key areas where AI and ML are being applied, including Shariah-compliant investment screening, risk management, asset allocation, trading strategies, and customer services. The study scrutinizes the implications of these technologies on financial inclusion, ethical finance, and regulatory compliance in the ICM.
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Introduction

The Islamic capital market is a specialized financial system designed to operate in accordance with Islamic principles and Sharia law. It provides a framework for raising capital and making investments while ensuring compliance with ethical and religious guidelines (Bacha & Mirakhor, 2019).

Islamic capital market (ICM) transactions are conducted in manners that do not contradict Muslim conscience or Islam's religion (Hassan & Mahlknecht, n.d.). Here, Islamic rule is asserted so that the market is devoid of practices prohibited by Islam, such as usury (riba), gambling (maisir), and ambiguity (gharar).

The ICM is a component of Malaysia's total capital market. It contributes significantly to the country's economic progress. The ICM operates as a parallel market to the conventional capital market and complements the Islamic banking system in widening and deepening Malaysia's Islamic financial markets (Antonio & Hafidhoh, 2013). Malaysia's ICM remains a tempting location for all stakeholders to this day.

The SC's initial objective in establishing a specialized Islamic Capital Market Department (ICMD) was to offer critical infrastructure support. The ICMD's mandate is to conduct out development and research activities, such as developing and facilitating a long-term plan to enhance the ICM in Malaysia.

Malaysia has also pushed for the introduction of a two-tier Shariah governance framework for the ICM. In May 1996, the Securities Commission Act was amended to include a provision allowing the Shariah Advisory Council (SAC) to issue judgements.

Here's a detailed overview of the Islamic capital market:

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