The purpose of this research is to examine risk mitigation strategies in Islamic finance, specifically fintech, in depth. The research methodology for this conceptual chapter consists of an exhaustive examination of the existing literature, academic papers, industry reports, and case studies that pertain to fintech innovation and risk mitigation strategies in Islamic Finance. By means of synthesising and analysing pre-existing information, this chapter endeavours to furnish an all-encompassing comprehension of the subject matter. This study is anticipated to make a valuable contribution to the growth of an Islamic finance industry characterised by safety, stability, innovation, and adherence to Islamic principles.
Top1. Introduction
The Islamic financial system has experienced substantial growth in recent decades as a result of the increasing need for financial products and services that adhere to Shariah principles. (Beik & Nursyamsiah, 2021; Young, 2018). However, as in the conventional financial industry, risk remains a crucial component of the Islamic financial system's success and stability. The difficulty of mitigating risk is exacerbated by the complexity of the structure of Islamic financial products and transactions involving sharia principles. In this regard, innovations in financial technology (fintech) offer the potential to address these issues(Alexander & Karametaxas, 2021; Anshari et al., 2021; Truby et al., 2022). Fintech, which includes technologies such as artificial intelligence, blockchain, big data analytics, and digital financial services, can enhance the Islamic financial system's efficiency, transparency, and dependability.
In the context of Islamic finance, a sharia-based financial system has emerged as a more moral and religiously-compliant alternative. However, Islamic finance also confronts significant risks that threaten the system's stability and viability. Risks such as market risk, credit risk, operational risk, and Islamic compliance risk must be effectively managed. In recent years, innovations in financial technology, such as fintech, have garnered worldwide attention. Fintech provides a variety of technological solutions that can reduce risk and boost efficiency in the financial sector. Fintech has the potential to be a powerful risk mitigation instrument within the context of Islamic finance.
Consequently, research on risk mitigation strategies in Islamic finance enabled by fintech innovation has become crucial(Rahadian & Thamrin, 2023). This study seeks to examine fintech-based risk mitigation strategies applicable to the Islamic financial system. In addition, the study seeks to identify the benefits and challenges associated with the application of AI, Machine Learning, and Blockchain in mitigating Islamic finance risks, and to offer practical guidance for practitioners and policymakers in the Islamic fintech industry. This research is anticipated to contribute to the sustainable and stable growth of the Islamic fintech industry by enhancing the understanding of how AI, Machine Learning, and Blockchain can be employed to mitigate risks in Islamic fintech systems.
The purpose of this study is to examine in-depth risk mitigation strategies in Islamic finance, particularly in fintech. We will identify viable strategies, assess the associated benefits and challenges, and provide practitioners and policymakers in the Islamic fintech industry with practical guidance. Thus, it is anticipated that this research will contribute significantly to the development of a secure, stable, and innovative Islamic fintech system. Our research seeks to increase understanding of the use of AI, Machine Learning, and Blockchain for risk mitigation in Islamic finance, particularly fintech, by providing a comprehensive background.
It is anticipated that the findings of this study will provide valuable insights for the Islamic finance industry and encourage the adoption of suitable risk management strategies. Models of artificial intelligence must be developed in accordance with sharia principles. Although the application of artificial intelligence and big data analytics is promising for mitigating Islamic finance risks, the incorporation of Islamic aspects into algorithms is still insufficient. Therefore, additional research is required to develop AI models that take sharia requirements into account more thoroughly. AI technology and big data analytics can help identify patterns and risk trends in general, but more research is required to identify specific risk patterns within the context of Islamic fintech. This includes the risks of sharia compliance, contracts that violate sharia principles, and the reputational risk associated with sharia compliance. The development of Islamic finance-relevant and -appropriate fintechs will be aided by research that focuses on identifying typical risk patterns in Islamic finance.