A GOVERNANCE-AWARE AI PROTOTYPE FOR SHARIAH SCREENING IN ISLAMIC DIGITAL FINANCE: DESIGN, TESTING AND COMPARATIVE ABLATION
DOI:
https://doi.org/10.33102/qy5kx603Keywords:
Islamic fintech, Shariah governance, artificial intelligence, design science research, Claude Fable 5Abstract
Artificial intelligence is already part of digital finance, yet Shariah-sensitive use raises a distinct governance problem. The relevant question is whether an AI-assisted system can help reviewers identify material issues while keeping juristic and institutional authority with qualified humans. This paper reports the design, initial functional demonstration and comparative ablation of a governance-aware prototype for preliminary Shariah screening in Islamic digital finance. Developed through Design Science Research, the artifact combines structured intake, issue mapping, source-category discipline, preliminary risk-state classification, audit records and human escalation. It supports early review and records uncertainty; it does not issue fatwa or certify products. A grey-box reporting approach discloses the design rationale, public architecture, testing protocol and aggregate results while withholding hidden prompts, proprietary orchestration rules, source-weighting logic and deployment details. In Core Run 1, Claude Fable 5 (claude-fable-5) matched the expected preliminary risk state in all twelve pre-specified scenarios and obtained 108 of 108 functional points. The same model, tested without the Hybrid Shariah Governance (HSG) layer, scored 78 of 108 points (72.2 percent). Issue recognition remained high at 91.7 percent, but the plain model produced no bounded risk-state taxonomy, stated its non-fatwa status in only 41.7 percent of outputs and often escalated generically. Because several rubric items reward behaviours the HSG layer is instructed to produce, the gap indicates that governance behaviour must be engineered rather than assumed; it is not a measure of the model's juristic capability. Because the reported runs were single-session, single-round and initially self-coded, the result establishes protocol workability and initial governance discipline only. Expert-validated Shariah correctness remains outside the claim of this conference paper.
Downloads
References
Accounting and Auditing Organization for Islamic Financial Institutions. (2015). Shari'ah standard no. 30: Tawarruq. AAOIFI.
Accounting and Auditing Organization for Islamic Financial Institutions. (2021). Shari'ah standards. AAOIFI.
Alshater, M. M., Saba, I., Supriani, I., & Rabbani, M. R. (2022). Fintech in Islamic finance literature: A review. Heliyon, 8(9), e10385. https://doi.org/10.1016/j.heliyon.2022.e10385
Arner, D. W., Barberis, J., & Buckley, R. P. (2017). FinTech, RegTech, and the reconceptualization of financial regulation. Northwestern Journal of International Law & Business, 37(3), 371-413.
Arrieta, A. B., Diaz-Rodriguez, N., Del Ser, J., Bennetot, A., Tabik, S., Barbado, A., Garcia, S., Gil-Lopez, S., Molina, D., Benjamins, R., Chatila, R., & Herrera, F. (2020). Explainable artificial intelligence (XAI): Concepts, taxonomies, opportunities and challenges toward responsible AI. Information Fusion, 58, 82-115. https://doi.org/10.1016/j.inffus.2019.12.012
Autorite de Controle Prudentiel et de Resolution. (2020). Governance of artificial intelligence in finance. ACPR.
Bank Negara Malaysia. (2018). Tawarruq. Bank Negara Malaysia.
Bank Negara Malaysia. (2019). Shariah governance policy document. Bank Negara Malaysia.
European Parliament & Council of the European Union. (2024). Regulation (EU) 2024/1689 laying down harmonised rules on artificial intelligence (Artificial Intelligence Act). Official Journal of the European Union.
Financial Stability Board. (2017). Artificial intelligence and machine learning in financial services: Market developments and financial stability implications. FSB.
Floridi, L., Cowls, J., Beltrametti, M., Chatila, R., Chazerand, P., Dignum, V., Luetge, C., Madelin, R., Pagallo, U., Rossi, F., Schafer, B., Valcke, P., & Vayena, E. (2018). AI4People - An ethical framework for a good AI society: Opportunities, risks, principles, and recommendations. Minds and Machines, 28, 689-707. https://doi.org/10.1007/s11023-018-9482-5
Ginena, K., & Hamid, A. (2015). Foundations of Shari'ah governance of Islamic banks. Wiley.
Grassa, R. (2013). Shariah supervisory system in Islamic financial institutions: New issues and challenges. Arab Law Quarterly, 27(2), 171-187. https://doi.org/10.1163/15730255-
Gregor, S., & Hevner, A. R. (2013). Positioning and presenting design science research for maximum impact. MIS Quarterly, 37(2), 337-355. https://doi.org/10.25300/MISQ/2013/37.2.01
Gunning, D., & Aha, D. (2019). DARPA's explainable artificial intelligence program. AI Magazine, 40(2), 44-58. https://doi.org/10.1609/aimag.v40i2.2850
Hasan, Z. (2011). A survey on Shari'ah governance practices in Malaysia, GCC countries and the UK. International Journal of Islamic and Middle Eastern Finance and Management, 4(1), 30-51. https://doi.org/10.1108/17538391111122195
Hevner, A. R., March, S. T., Park, J., & Ram, S. (2004). Design science in information systems research. MIS Quarterly, 28(1), 75-105.
Hudaefi, F. A. (2020). How does Islamic fintech promote the SDGs? Qualitative evidence from Indonesia. Qualitative Research in Financial Markets, 12(4), 353-366. https://doi.org/10.1108/QRFM-05-2019-0058
International Organization of Securities Commissions. (2021). The use of artificial intelligence and machine learning by market intermediaries and asset managers. IOSCO.
Islamic Financial Services Board. (2009). IFSB-10: Guiding principles on Shariah governance systems for institutions offering Islamic financial services. IFSB.
ISO/IEC. (2023a). ISO/IEC 23894:2023 Information technology - Artificial intelligence -Guidance on risk management. International Organization for Standardization.
ISO/IEC. (2023b). ISO/IEC 42001:2023 Information technology - Artificial intelligence -Management system. International Organization for Standardization.
Jobin, A., Ienca, M., & Vayena, E. (2019). The global landscape of AI ethics guidelines. Nature Machine Intelligence, 1, 389-399. https://doi.org/10.1038/s42256-019-0088-2
Maple, C., Szpruch, L., Epiphaniou, G., Staykova, K., Singh, S., Penwarden, W., Wen, Y., Wang, Z., Hariharan, J., & Avramovic, P. (2023). The AI revolution: Opportunities and challenges for the finance sector. arXiv. https://arxiv.org/abs/2308.16538
March, S. T., & Smith, G. F. (1995). Design and natural science research on information technology. Decision Support Systems, 15(4), 251-266. https://doi.org/10.1016/0167-9236(94)00041-2
Ministry of Science, Technology and Innovation Malaysia. (2024). National guidelines on artificial intelligence governance and ethics. Government of Malaysia.
National Institute of Standards and Technology. (2023). Artificial intelligence risk management framework (AI RMF 1.0) (NIST AI 100-1). U.S. Department of Commerce. https://doi.org/10.6028/NIST.AI.100-1
OECD. (2019). Recommendation of the Council on artificial intelligence. OECD Legal Instruments.
Omar, M. N., & Ahmad Badar, M. I. M. (2026). An Islamic juristic framework for data and algorithmic monetisation in the digital economy. International Journal of Islamic Finance and Sustainable Development, 18(2), 107-127. https://doi.org/10.55188/ijifsd.v18i2.1255
Peffers, K., Tuunanen, T., Rothenberger, M. A., & Chatterjee, S. (2007). A design science research methodology for information systems research. Journal of Management Information Systems, 24(3), 45-77. https://doi.org/10.2753/MIS0742-1222240302
Raji, I. D., Smart, A., White, R. N., Mitchell, M., Gebru, T., Hutchinson, B., Smith-Loud, J., Theron, D., & Barnes, P. (2020). Closing the AI accountability gap: Defining an end-to-end framework for internal algorithmic auditing. Proceedings of the 2020 Conference on Fairness, Accountability, and Transparency, 33-44. https://doi.org/10.1145/3351095.3372873
Rudin, C. (2019). Stop explaining black box machine learning models for high-stakes decisions and use interpretable models instead. Nature Machine Intelligence, 1, 206-215. https://doi.org/10.1038/s42256-019-0048-x
Securities Commission Malaysia. (2024). Guidelines on recognized markets. Securities Commission Malaysia.
Securities Commission Malaysia Shariah Advisory Council. (2020). Resolutions of the Shariah Advisory Council of the Securities Commission Malaysia. Securities Commission Malaysia.
UNESCO. (2021). Recommendation on the ethics of artificial intelligence. UNESCO.
