Digital Finance and Artificial Intelligence: Islamic Finance

Challenges and Prospects

Dawood Ashraf1

Abstract: Access to finance matters for development, especially for the microentrepreneurs. The microfinance
movement is applauded for its role in helping small businesses to grow. However, experience with conventional
microfinance has been mixed in terms of capital building for microentrepreneurs. There is tremendous growth in
providing access to finance to the bottom of the pyramid. The use of artificial intelligence and big data has
helped fast-track the process, and now more people have access to finances than ever before. While interest-
based finance has encouraged some economic growth, it has tremendously overindebted the microentrepreneurs
without a corresponding growth in capital. It failed to address many socio-economic issues fully and very often
increased systemic instability. In contrast, Islamic finance holds the promise against these ills. Its design
principles ensure stability and fairness, and its diversity of products can help increase financial inclusion. Its
diversity of applications across three paralleled public, private and voluntary sector channels can ensure a more
robust and consistent impact on economic growth and development. The present chapter highlights the
importance of artificial intelligence as a critical infrastructure to facilitate financial inclusion using the Islamic
finance framework.

1 Introduction

During the 1990s, a growing body of literature began to emerge around access to banking services. The term
"financial exclusion" (the opposite of financial inclusion) was coined to describe a situation where individuals and
businesses are hindered with limited access to the financial services (Leyshon and Thrift, 1993; Kempson and
Whyley, 1999). According to the World Bank Group, “Financial inclusion means that individuals and businesses
have access to useful and affordable financial products and services that meet their needs – transactions, payments,
savings, credit, and insurance – delivered in a responsible and sustainable way.” (Worldbank, 2022)
Access to financial services helps families and businesses to save for long-term goals like children’s education
or emergency needs. Achieving financial inclusion is a critical component of both poverty reduction and the
expansion of economic opportunities. In contrast, inaccessibility to financial services stifles economic growth and
exacerbates inequality since it prevents the talented poor from investing in physical and human capital, thereby
impeding the economic growth (Galor and Zeira, 1993; Banerjee and Newman, 1993), instigates social
conflict, expropriation, and rent seeking behavior (Alesina and Rodrik, 1994; Benhabib and Rustichini,
1996; Benabou, 1996; Perotti, 1996; Acemoglu and Robinson, 2000).
Financial market development does not guarantee access to financial services for everyone. To ensure
financial inclusion, it will be crucial that various sectors of society have their needs addressed, appropriate
technologies are used, and enabling policies are in place. A major obstacle to financial inclusion is the lack of
access to services for saving and investing on the one hand and to credit, particularly for raising capital, on the
other.
There are several reasons highlighted in literature for hindrance in access to financial services and may include
on both demand and supply side and include:

1. On the supply side

• Operational cost: Formal financial institutions do not find it cost-effective to devote extensive
resources to a diverse group of opaque and high operating cost sectors that have relatively smaller
transaction sizes.

1
D. Ashraf
Islamic Development Bank Institute, Islamic Development Bank Group, Saudi Arabia.
e-mail: dawood.ashraf@gmail.com
The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Islamic
Development Bank Group (IsDBG), including the Islamic Development Bank Institute, or their Board of Governors, or the
Governments they represent.

Electronic copy available at: https://ssrn.com/abstract=4199484

 • Adverse selection: It is extremely challenging for banks to assess the creditworthiness of businesses
from the informal sector, leading to delays in access to finance and often financing on restricted terms.
These factors render existing financial intermediation models exclusionary.

2. On the demand side

• Lack of formal identity, informal sector, fear of taxman, and informationally opaque (borrowers).

2 Digital Finance: Artificial intelligence

An increasing number of economic and political events, such as the financial crisis of 2008 and, more recently,
the COVID-19 pandemic, have encouraged the use of financial technology (FinTech) to solve wicked problems.
FinTech solutions are widely available and now cover the full spectrum of finance. Figure 1 illustrates various
areas of finance where AI is gaining quick traction, resulting in better outreach and efficiency for society.

Fig. 1 Artificial intelligence application in finance: A global perspective. Source The United Nations Secretary Task Force of Digital
Financing of the Sustainable Development Goals (2020)

The rise in computing power and availability of alternative data created unique opportunities to apply Artificial
intelligence (AI) to solve a number of problems associated with credit and investment decisions. The COVID-19
pandemic accelerated the application of digital solutions harnessing the AI power and big data to a number of
challenges associated with credit and investment products.
Digital financial services are essential for enhancing financial inclusion. The use of technology can resolve
some major pain points. Access to saving and investment products, for example, has seen significant improvement
through the use of technology between 2014 to 2017. With mobile banking, a transaction can be conducted without
having to leave the comfort of home is highly beneficial for achieving last mile inclusion.
By connecting small businesses with fintech companies, financial inclusion is enhanced both in terms of access
to finance and savings. Globally, financial inclusion is increasing. According to the Global Findex 2017, 1.2
billion adults have opened accounts since 2011, which includes 515 million adults since 2014. Globally, the share
of adults who have an account with a financial institution or use a mobile money service has increased from 62%
to 69% between 2014 and 2017. This percentage increased from 54% to 6% in developing economies.
The rapid digitalization of finance during the COVID-19 pandemic accelerates the adoption of new flexible,
highly networked, adaptable, and more intelligent operating models. On the deposits and saving sides, mobile
phone banking played a key role in enhancing financial inclusion. FinTech offers financial services in almost all
domains, including financial intermediation (challenger banking), alternative financing (platform lending and P2P

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crowd funding), asset management (robo-advisory), and insurance. The AI supports each of these companies in
terms of fraud prevention on the deposit and savings side while avoiding adverse selection on the lending side.

3 Access to finance: Challenge for Microentrepreneurs and SMEs

Microentrepreneur success is a function of business skills, attitude, willingness, and ability to take risks and
grow the business. Several emerging economies have found that financing MSME growth has become an
increasingly important development tool. However, financial products and services that meet their needs,
including transactions, payments, savings, credit, and insurance, remain challenging to find at affordable rates.
The majority of MSMEs do not have access to formal financial institutions to finance their operations. The
greatest barrier for MSMEs to obtain formal financing is information asymmetry. Consequently, a huge portion
of the global population went unserved because of the absence of a regular source of income and an established
credit history, and the lack of collateral.
It is challenging for banks to assess the creditworthiness of MSMEs, resulting in lengthy delays and often
restrictive financing terms. All in all, the existing financial models are exclusionary, creating individuals who
are 'invisible,' 'unscorable,' and 'thin file' rated. In addition, formal financial institutions are reluctant to allocate
vast resources towards opaque and high-cost sectors when they can offer relatively smaller loans to a wide
variety of firms.
Major stakeholders, including governments, donors, and financial institutions, have used microcredit as the
primary tool for reaching capital-strapped microenterprises and alleviating the poverty of financially and socially
excluded people. However, the empirical evidence suggests that microcredit has little or no impact on the financial
performance of microenterprises, leading to sub-optimal growth during microenterprise evolution because of a
heavy cash outflow burden on microenterprises. Microfinance has helped MSMEs access to credit but has often
resulted in suboptimal strategies to mitigate their default risk, such as:

• asymmetric pricing often at very unfavorable terms.

• offering standardized short-term loan products with minimal amounts and often involving bullet
payments at the end.
• non-availability of insurance products for hedging.

While on the supply side, microfinance institutions face a very high operational cost as the volume of
transactions is high while the amounts are small. The challenges faced by MSMEs in getting access to finance
require a holistic approach, especially thin-file microenterprises.
For poverty alleviation and ensuring the success of microenterprises, access to finance is not sufficient. The
microfinance approach is an oversimplified approach to solving a multilayered problem. In order to properly
identify and prescribe the appropriate solution at the various stages of entrepreneurial financing, it is important to
understand the role of government policies, donors, technology, and financial infrastructure. With a one-size-fits-
all approach, there has been a proliferation of players in a market focused on a small number of micro-borrowers,
resulting in unnecessary competition among credit suppliers and over-indebtedness of borrowers.
An important tool in assessing the creditworthiness of individuals and MSMEs is credit scoring, which can be
done effectively and efficiently with easy-to-understand criteria for accepting or rejecting a loan application. Due
to the advent of new technologies and increased computing power gained during the last couple of decades, there
has been a race to learn, adapt, and use data venues that have never been used before, and credit risk assessment
is no exception (see figure 2). With greater access to a broader range of data, increased computing power, and
more and more demands for efficiency improvements, the method of assessing credit risk has evolved from
traditional credit scoring models to a new breed of models that utilize AI to assess credit risk, especially for thin
files.

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 Fig. 2 Evolution of credit scoring models. Source Ashraf et al. (2021).

The adoption of AI results in an objective, better-informed faster (backed by data), more accurate credit risk
assessment of businessworthy MSMEs lacking credit history. AI's application has started using big data obtained
from multiple sources, including mobile phones, social media, rental payments, and psychometrics. AI models
often use low-value digital footprint (features) not directly relevant to the assessment of creditworthiness by
applying more complex methods for credit risk assessment. There are several financial institutions and lending
platforms that now use alternative data and AI algorithms for credit risk evaluation.
The benefits of using alternative data and AI for credit scoring include greater financial inclusion through
better access to credit, improved accuracy of the underlying models, efficiency gains from the automation of
processes, and potentially improved customer experience. While the application of artificial intelligence using the
alternative data may enable the developing of more accurate algorithms to assess creditworthiness, predict failure,
and develop tailored pricing and products/services, simultaneously, it brings challenges related to a shortage of
resources and possible consequences of the adoption of AI regarding fairness that is discrimination among
borrowers, data privacy and security. Table 1 reports the major differences in the traditional credit scoring models
and new credit scoring approaches using the AI techniques.

Table 1 Benefits and limitations of traditional credit scoring versus AI based scoring.
Benefits Limitations
• Create invisibles due to intensive information
requirement and historical data
• A systematically developed approach: consistent, •
Traditional Credit Score

Backward looking approach where future economic

effective easy to understand numeric value for outcomes are not considered such as the global financial
banks to decide whether to grant a loan or not. crisis
• Historical information like loan repayment • Take longer time for underwriting
history, income, existing loan contribute to final
• Loan underwriting often involve expert judgment
score
leading to judgment error perpetuation
• Encourage financial discipline – reward for longer
• Further enhancement is stalled
term good behavior both in terms of amount and
rate. • Take long time to build credit in case of a bad event in
life
• Hard to calibrate with new data

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 • Greater access: provide credit beyond those with • Black box system: lack of transparency due to some
credit history and financial information degree of models’ autonomous self-learning
• Improved accuracy of default prediction: secure, • Consumer protection and reputation risk
holistic and multidimensional credit assessment • Limited interpretation of credit scores due to hidden
based on personal traits, business acumen, and layers in the complex models
networking minimizes risk for lenders
AI – based credit assessment

• Fairness – inbuilt data biases due to unintentional proxy

• Better customer experience – efficient loan discrimination
processing
• Accountability
• Leading-edge tech capabilities: self-learning
credit scoring model • Data privacy and security
• Efficient and faster outcomes – human bias is • Governance of model
minimized • Unintended consequences – exploitation of financially
• Automated decisioning prevent sociological bias fragile leading to higher indebtedness and
in factors like age or demographics from creeping financialization
in due to human involvement at the time of • Disparity in maturity across market
decision making. • Hinders effective risk management due to opaqueness of
• Personalized structuring – customer segmentation AI techniques
is possible with reward to specific group e.g. • Systemic risk due to increasing interconnectedness
professional graduate pursuing entrepreneurship across domestic and cross-border systems (World
• Use of real time data Economic Forum and Deloitte, 2018).
Source Ashraf et al. (2021).

Several digital lending platforms employ artificial intelligence and leverage structured and unstructured data
in a variety of models to offer a variety of products (see table 2). These platforms are said to have provided loans
to millions of borrowers in China, Hong Kong, the Philippines, Indonesia, Kenya, Nigeria, India, and Latin
America. The default rates of the majority of these platforms are comparable with the default rates of developed
models. Recently, companies have begun to offer products catering to socially responsible and faith-based
entrepreneurs. For example, Fintek Syriah in Indonesia offers asset-backed financing, while See Out in Pakistan
provides interest-free financing to entrepreneurs (Ashraf, 2022).

Table 2 AI and access to finance – products, data, and models.

Structured Data Unstructured Data
Linear Regression (Forecast Default)
Logistic Regression (Classification of Loan Applicants) Regression & Classification
Debt
Recurrent Neural Network (RNN) Deep neural networks for unstructured data
Deep neural networks
Linear Regression (Forecast Business Success/Failure)
Logistic Regression (Classification of Business partners) Regression & Classification
Equity
Convolutional Neural Network (CNN) Deep neural networks for unstructured data
Deep neural networks
Unsupervised Clustering (exploring)
Logistic regression (Multiclass Classification of Grant
Clustering & Classification
Grant Seekers)
Neural networks
Convolutional Neural Network (CNN)
Deep neural networks
Source Ashraf et al. (2021).

3.1 Concerns with Digital Financing

Despite the rapid growth of digital lending, there are several concerns regarding the use of AI for credit screening,
especially concerning financial inclusion. It is common for platforms to offer short-term loans at predatory interest
rates, more often in the form of consumption loans. Further, AI primarily focuses on debt creation and credit
expansion, which leads to rapid societal debt accumulation in the name of financial inclusion in developing
countries and efficiency enhancement in developed countries. To prevent the financialization of fringe borrowers,
it is necessary to review the credit granting practices of such platforms critically.
For financial intermediation, big data and AI provide better infrastructure. The infrastructure enables better
and more efficient delivery of financial services but does not address the shortcomings of the financial system
resulting in problems such as financialization. Therefore, a holistic approach is needed, considering the
microentrepreneurs' poverty level and risk-sharing abilities.

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4 Financial Inclusion and The Islamic Finance: Digital Adoption Backed by AI and
Alternative Data
For access to finance, a recent report by the Islamic Development Bank Institutes (2021)2 proposes a detailed
infrastructure-led scheme based on Islamic finance principles and governed by Islamic financial institutions (see
Figure 3). In theory, the two-pillar approach could lead to easy access to capital more efficiently at the lowest
possible cost for everyone.
First, a sustainable and inclusive policy must be developed based on a staggered approach that maps the
macroeconomic requirements of microentrepreneurs at different stages of development. Graduated approaches
exploit the risk-sharing ability of microentrepreneurs and rely on recent field experiment literature for application
support.
Second, Institutional arrangement to execute the policy framework. Islamic finance offers a comprehensive
set of institutional arrangements and a variety of products that can help solve the issue of access to credit.
Based on Islamic finance principles, this framework is potentially able to create a policy framework that
enables all segments of society to access finance without increasing indebtedness, which is often a criticism of
debt-based interventions such as microcredit.

Fig. 3 Islamic finance framework for socio-economic development. Source Ashraf et al. (2021).

4.1 The Islamic Finance Framework for Digital Finance

In Islamic finance, interventions are meant to support productive activities by raising capital. Although this
framework is primarily intended for entrepreneurship development, it has the ultimate goal of reducing poverty.
The proposed framework exerts access to finance to those individuals/firms who are business-worthy to undertake
the venture as profitable to compensate both. Organizational life cycle theory provides the basis for the framework
and is supported by working capital management and owners’ liability management.
The framework is reinforced by empirical studies using field experiments in different regions of the world,
wherein researchers explore three broad interventions for accessing capital for the financially excluded population
to alleviate poverty. These include grants, loans, and equity.
Islamic finance framework for access to capital recognizes the need for a multiplicity of intuitions and diversity
of products to suit the capital requirements of MSMEs as these grow in size and complexity. Accordingly, for
each stage of development, there is an optimal instrument and optimal institutional arrangement. Figure 4 depicts
the Islamic finance framework with four instruments for capital development under three different institutional
arrangements involving the voluntary sector, public sector, and private sector.

2
Can be accessed at: https://irti.org/product/artificial-intelligence-and-islamic-finance/

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Fig. 4 Islamic finance framework for financial inclusion. Source Ashraf et al. (2021).

4.1.1 Grants

Grants are like seed capital, and the grantee is not required to pay back anything to the grantor. There are several
filed experiment studies highlighting the effectiveness of grants in building capital for microentrepreneurs. In
aggregate, these studies suggest that grants, especially unrestricted cash grants, help microentrepreneurs grow
capital and hire more people. Based on the consistency of results across regions and a variety of demographic
features, it can be assumed that the impact of the grant is robust to both context and implementation variations.
However, it is important to be cautious because grants are easy to disburse but are also easy to misallocate by
beneficiaries, either from a lack of self-control or family pressure. Providing in-kind grants is a better option due
to the illiquidity of assets that are built on grants. The downside is that this may impede investment options that
could help the microenterprise grow. The provision of grants by external agencies to entrepreneurs in developing
countries without any expectation of a stake in the business or share in its profits is an essential step toward
promoting social equity. However, the problem with this approach is that it relies heavily on donations and
subsidies from the government, development agencies, and philanthropists, which may not be sustainable in the
long run.

4.1.2 Interest Free Financing

In the financial market, interest-free lending is not as popular as grants or microcredit. Possible explanations may
include the nonremunerative nature of the transaction. There is, however, some evidence that interest-free loans
can be beneficial to the poor at the bottom of the pyramid as a way to build capital as well as increase consumption.
A benefit of interest-free loans is their better financial control, as borrowers are required to make regular payments
in order to qualify for a higher amount and build their credit score. The borrower can keep all the upside of the
return, which helps microentrepreneurs build capital faster, ultimately breaking the vicious cycle of poverty. A
large number of NGOs providing interest-free loans rely on social capital as collateral, and these firms face very
low default risk. As an example, defaults on loans by Akhuwat Foundation in Pakistan are virtually nonexistent.

4.1.3 Micro loans through Microfinance institutions

Microcredit is the most common form of access to credit worldwide. Entrepreneurs are disciplined with
microcredit since they are required to repay the principal and pay interest. Financial discipline allows
microenterprises to be streamlined and effective. Based on our literature review, we can conclude that microcredit
promotes entrepreneurship. However, the benefits for households differ significantly.

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 In summary, microcredit does not completely transform people's lives; however, it may give them greater
flexibility and choice by enabling them to borrow. The impact on social indicators such as schooling is virtually
zero, though one study in Bosnia found a decline. In Mexico, another study shows that women's decision-making
power, happiness, and trust are on the rise.
Microfinance advocates praise the financial discipline associated with microloans for establishing credit
histories and allowing enterprises to qualify for larger amounts of financing (Pretes, 2002). However, the financial
discipline hypothesis ignores the fact that in difficult times, such as the COVID-19 pandemic, microenterprises
have a limited ability to absorb financial risk. Several studies have suggested that low-income borrowers often
refinance with moneylenders, sell household items, and move from their native villages to urban areas to work as
laborers to make the loan payments (Chen, Rasmussen, and Reille, 2010; Francis, Blumenstock, and Robinson,
2017). Inherently, microfinance schemes lack empathy and underestimate the risk capacity of microentrepreneurs.

4.1.3.1 Micro loan: Participatory finance

The participatory finance proposed in the Islamic finance framework offers similar benefits as microcredit while
addressing both concerns of indebtedness and risk sharing in a time of crisis. The diversity of Islamic finance
instruments provides flexibility to both financier and borrower, and the clause of no change in price due to credit
default provides a ceiling since the inception of the transaction.

4.1.3.2 Micro-equity financing

The entrepreneur and financier share risk in equity financing, which lowers transaction costs. Poor entrepreneurs
could start a business or adopt innovative ideas that they might not have considered if they had borrowed money.
Equity financing entails a return on investment linked to the success of the micro-enterprise. However, the
microcredit provider is entitled to receive the interest income regardless of the microenterprise's ability to sustain
such expenses.
Risk-sharing is at the core of micro-equity financing. As a capital provider becomes a partner in micro-
enterprise, the bond between the financier and entrepreneurs grows as they share business risks and know-how,
expertise, and experience in order to ensure venture success.
In developed countries, startup grants and equity financing are successful alternatives to micro-equity
financing for microenterprise development through institutions similar to venture capital firms, where investors
decide which microenterprise deserves funding. The joint venture structure is superior because it allows piecemeal
transactions under shared ownership and control, thus substantially reducing the costs of valuing complementary
assets. The risk-sharing feature of financing can spur innovation since venture capital firms can assist high-
performing microentrepreneurs in funding projects that microfinance institutions are not able/willing to support.
Microfinance institutions can turn over their successful and growing clients to traditional lending institutions or
venture capital firms to continue their growth trajectory.

5 Financial Infrastructure: Institutional Arrangement

Having a policy framework in place helps all partners to follow a strategy to promote innovation and
entrepreneurship. However, without developing a financial infrastructure that recognizes access to capital as a
need of the economy, the positive outcome of the policy framework would be impossible to achieve. Developing
a resilient infrastructure necessary for efficient delivery of financial services is the second pillar of policy
intervention.
In this context, infrastructure includes both physical and intellectual capabilities. The infrastructure pillar aims
to capture, store, and make available all available touch points necessary to reduce information asymmetry and
increase access to capital. A financial technology contribution could include improved data storage, faster analysis
and use of alternative data, and the application of AI to make decisions. Digital infrastructure plays the most
crucial role in overall financial infrastructure, particularly for financial inclusion, because data inclusion leads to
financial inclusion.
Figure 5 outlines a basic infrastructure for financial risk assessment highlighting the tools needed at various
stages of business development. For example, using AI to screen microentrepreneurs is possible in the case of
interest-free financing to assess their skills, business know-how, entrepreneurial traits, and ability to network. The
following methods can be used to avoid adverse selection in such a situation: a psychometric analysis, a network
analysis, a credit screening (financial management history), and business worthiness of microenterprises.

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Fig. 5 Application of AI for the financial assessment of microentrepreneurs. Source Ashraf et al. (2021).

While in the case of grants, credit risk assessment may not be a big concern, however, grant providers often
have social causes to invest. By enhancing transparency and avoiding adverse selection, AI can help find better
fund suitors. AI can be used in the grant process to determine the entrepreneurial abilities of applicants by using
psychometrics and network analysis to determine the breadth of the network necessary to support a
microenterprise's operation. Additionally, digitalizing transactions can reduce monitoring costs even further.
Next, the high-level framework needs to be aligned with stakeholder incentives both on the demand side and
on the supply side. It provides a healthy competition environment between traditional financial institutions and
fintech financial service providers by allowing suppliers of financial services for responsible financial innovation.
Mutual cooperation can be more beneficial. Financial services providers, for example, may find it challenging to
integrate AI and big data due to a number of reasons, such as legacy systems and insufficient staff training.
Similarly, without access to real customers or financial resources, a fintech company with a successful proof of
concept may fail in the market. A regulatory sandbox and development of open API programs, which would allow
fintech companies and financial institutions to work together more closely to advance the industry's understanding
and enhance financial inclusion through the use of AI and big data, can help fill this void.
An effective financial policy framework must incorporate financial innovation. Along with the cost of
acquiring the data, one should also consider who the potential users are, what kind of abilities they possess, and
what kind of data they generate. A digital finance ecosystem cannot be successful without good data. However,
without an appropriate data governance system, it will be challenging to achieve the socio-economic benefits of
digital finance. Besides the biased application of data in AI, which creates and excludes a segment of society, data
privacy is a major concern. A good governance system should encourage financial innovation while
simultaneously keeping a check on systemic risk.
The ability of the regulators to keep up with evolving markets, and maintain the stability of the financial
system, is an important success factor. Regulators who are informed can create an environment that facilitates

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financial innovation via AI, big data, and enhancing financial inclusion. Due to the capacity challenge, regulators
may not have a clear understanding of how innovation aligns with society's needs or the capability of service
providers to deliver digital products safely. It may result in unreasonable demands from the regulators, which may
hamper innovation. Regulators' hesitation to adopt digital finance can hinder efforts and prolong suffering for
those who are financially excluded, preventing countries from reaching their potential with artificial intelligence.

6 Summary and Conclusion

For credit risk assessment of creditworthy MSMEs lacking credit history, fintech companies using the AI and
alternative data results in an objective, better-informed (backed by data), faster, more accurate credit scoring
(entrepreneurial scoring). AI models often use low value digital footprint (features) not directly relevant to the
assessment of creditworthiness by applying more complex methods for credit risk assessment. AI's application
has started using big data obtained from multiple sources, including mobile phones, social media, rental payments,
and psychometrics. There are several financial institutions and lending platforms that now use alternative data and
AI algorithms for credit risk evaluation.
Despite the efficiency gains, the application of AI cannot resolve systemic issues of financialization and
overindebtedness. A policy framework is proposed considering Islamic finance principles. The framework is
based on two pillars. One is developing a sustainable and inclusive policy using a staggered approach that maps
the macroeconomic requirements of microentrepreneurs at different stages of development. The financial
instrument aligned with Islamic finance maps at each stage of the business development includes grants, interest-
free financing, participatory finance, and equity financing. The second is a conducive institutional arrangement to
execute the policy framework. Islamic finance offers a comprehensive set of institutional arrangements that
include philanthropic, public, and private sectors that can help solve the issue of access to credit.
AI and big data can provide better financial infrastructure. AI has the potential to benefit both suppliers and
users of financial services. Financial services can be offered with high quality without discrimination against
consumers, and the providers can access markets that would otherwise be inaccessible due to the higher cost of
resolving information asymmetry. AI helps these companies improve efficiency and reduce operating costs while
providing better access to financing (terms, costs, and amounts) to entrepreneurs, as well as improving socio-
economic development in society.

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