Application of Artificial Intelligence (AI) in Islamic Investments

In this fast-developing technological era, the utilization of artificial intelligence (AI) is expanding across various fields, including Sharia-compliant investment. The application of AI technology in Sharia-based investments is gaining significant attention due to its potential to enhance efficiency, improve accuracy, and adhere to Islamic financial principles. This article delves into how AI technologies such as Algorithmic Trading, Stock Pick, and Robo Islamic Advisor are applied within Sharia-compliant investment practices.

1. Algorithmic Trading

Algorithmic Trading (AT), or algorithm-based trading, is an AI technology that allows investors to execute automatic transactions through specific algorithms. Not only does AT reduce the risk of human error, but it also optimizes trading efficiency, which is crucial in Sharia-compliant investments that prioritize accuracy and prudence.

One of the primary reasons algorithmic trading is gaining popularity is due to its advantages over manual trading. AT offers several benefits in terms of accuracy, speed, and cost reduction. This technology enables investment firms to scan market data, analyze price movements, and execute transactions quickly. In Sharia-compliant investments, AT offers the added advantage of eliminating emotional involvement in trading, ensuring that decisions are based solely on objective data.

Furthermore, several companies have successfully implemented algorithmic trading. For instance, Sentient Investments, an investment firm, utilizes AI in the form of machine learning to develop accurate quantitative investment and trading strategies. Moreover, the latest form of AI in algorithmic trading includes deep learning and image recognition, which process all available information to devise relevant investment strategies in decision-making. Companies such as UBS and ING in the Netherlands have even adopted AI systems that monitor the market for untapped investment opportunities, feeding this information into their algorithmic trading systems.

2. Stock Pick

Stock Pick is an AI-based method that supports investors in selecting the right stocks based on the analysis of current stock price movements and other market data. This technology is highly valuable in Sharia-compliant investments, where investors require guidance to ensure that the stocks chosen align with Sharia principles.

Additionally, Stock Pick assists investors in identifying the optimal timing for investment by considering market trends and stock movement patterns. This is particularly significant as Sharia-compliant investment principles emphasize caution and the avoidance of speculation-based investments.

For instance, a Californian start-up, Maxsys, has developed AI technology that is being utilized by a Malaysia-based company to build an investment portfolio comprising 20-50 stocks selected from the S&P 500 Index that adhere to Sharia principles. This index includes 125 component stocks compliant with Islamic guidelines. Meanwhile, a machine-learning algorithm (MLA) processes millions of data points from newly obtained data streams, stock volumes, and other market data to generate stock recommendations.

3. Robo Islamic Advisor (RIA)

Robo Islamic Advisor (RIA) is the world’s first automated Sharia-compliant investment platform introduced to customers. RIA aims to provide halal portfolio management access to 2 billion Muslims worldwide. Moreover, RIA is also considered the first ethical automated investment platform globally.

Wahed Invest, the investment company supporting this platform, offers a lower minimum investment threshold of USD 7,500 as a starter. They claim to be the first global Robo Advisor whose services are accessible to lower-income demographics. Initially, Wahed Invest was available only in the United States. However, in 2017, they expanded their business reach to more than 100 countries globally.

Soon after the launch of the world’s first Islamic Robo Advisor, another Kuala Lumpur-based company, Farringdon Group, introduced Asia’s first Sharia-compliant Robo Advisor, known as Algebra (Global Islamic Finance Report, 2017). This online tool provides automated portfolio management advice and is accessible to investors from various countries with a minimum investment of USD 200 per month. In this regard, clients can select funds from Algebra’s Islamic Master Select Portfolio. These various innovations demonstrate RIA’s critical role in the realm of Islamic investment, helping investors make investments through Sharia-compliant platforms.

Also read: Islamic Perspective on Saving: Between Virtue and Excess

Conclusion

The integration of artificial intelligence (AI) in Sharia-compliant investments represents a significant advancement in the field of Islamic finance, offering both efficiency and adherence to Islamic principles. Technologies like Algorithmic Trading, Stock Pick, and Robo Islamic Advisor (RIA) enable investors to make more informed and accurate decisions by automating processes that reduce human error, optimize transaction speed, and decrease costs. In particular, these tools support the cautious and ethical approach central to Sharia-compliant investing by utilizing data-driven strategies over emotional decision-making, adhering to principles of prudence and risk mitigation.

As demonstrated by platforms like Wahed Invest and Algebra, AI-driven solutions are helping to democratize access to Sharia-compliant investment options worldwide, allowing more Muslims to invest according to Islamic principles regardless of their income level. The success of these technologies in balancing ethical standards with financial performance suggests that AI will continue to play an essential role in the evolution of Islamic finance.

Refereneces:

Gazali, H. M., Jumadi, J., Ramlan, R., Rahmat, N. A., Nor, S., Uzair, H. M., & Mohid, A. N. (2020). Application of Artificial Intelligence (AI) in Islamic Investments. Journal of Islamic Finance (JIF), 9(2), 70–78.

BINUS University. (2023, September 6). Artificial intelligence dan keuangan. Sistem Informasi Binus. Retrieved from https://sis.binus.ac.id/2023/09/06/artificial-intelligence-dan-keuangan/

Wahed Invest. (2017). The halal investing guide. Retrieved October 4, 2019, from
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