Artificial Intelligence and Blockchain Integration in Islamic Banking: Opportunities, Efficiency Gains, and Emerging Challenges

Abstract

In recent years, Islamic financial and banking institutions have increasingly adopted artificial intelligence (AI) technologies as a strategic tool to enhance operational efficiency, automate complex banking processes, improve service quality, and strengthen their competitive positioning within both domestic and global financial markets. The accelerating digital transformation of the financial sector has compelled Islamic banks to explore advanced technological solutions that align with Shariah principles while addressing modern operational demands. This paper aims to emphasize the growing importance of artificial intelligence, encompassing both centralized and decentralized models, and to examine its role in improving the performance, resilience, and service quality of Islamic banking institutions. The study highlights the defining characteristics of centralized and decentralized AI systems and explores the opportunities they offer Islamic banks in optimizing operations, improving customer engagement, and sustaining competitiveness in an increasingly dynamic market environment. Furthermore, the paper underscores the importance of integrating blockchain technology with AI to enhance transparency, security, and trust in banking operations. It recommends that Islamic banks intensify their adoption of AI applications through the development of robust digital infrastructure, continuous staff training, and the implementation of comprehensive measures to ensure data security, privacy protection, and transaction transparency. In addition, the study calls upon supervisory and regulatory authorities, particularly central banks and related institutions, to establish effective governance frameworks, regulatory standards, and ethical guidelines to oversee the responsible and Shariah-compliant use of artificial intelligence and blockchain technologies in Islamic banking systems.