Role of Robo-advisors in Islamic Financial Institutions

Fazna Fazmi


This is the era of Robo’s who are becoming smarter and faster day by day. Their role and contribution are pivotal in transportation, health care, food industry, education, and financial advisory. With Artificial Intelligence (AI) coming into play, these robo’s are becoming more cognitive-enabled replicating human skills and emotional intelligence.

Robo-Advisors are disrupting the traditional way of wealth management and promising to ease the need for financial advisory by reducing human interactions. With the advancement of FinTech and AI, Banks and Financial Institutions are expected to adopt these innovations to perform better in financial markets.

As an artificial intelligence-based virtual financial advisor that provides automated financial planning, generated by algorithm-driven software with very little or no human involvement. This technology is expected to render its financial services to broader audiences at a lower cost compared to traditional rational advice.

Robo-Advisors gained popularity with the preference of digitally savvy millennials who opt for receiving financial advice online rather than interacting with human advisors whose charges are always at a premium. Also, those advisors prefer to condense their services for financially stable, well established senior citizens. The typical one to one advisory services are becoming less popular, and the trend is such that young people will soon start making firm financial decisions based on calculated results imparted by software rather than the conventional wisdom of a fellow human being.

These technological advancements, the preference of younger and new investors, and the growing popularity of Robo advisors have forced Banks and financial institutions to redefine their banking methods. It has even impacted Wall Street significantly.

By the end of 2015 Robo-Advisors hit $60 billion assets of clients managed by them and it is estimated that it will cross $2 trillion by 2020.


Robo-Advisors in Islamic Banking

Today, we live in an era of millennial and tech-savvy investor mind-sets and so must welcome new technologies with customized features that cater to the Islamic finance industry. In this context, it is good to know that Islamic investors have recently started embracing this new technology, Wahed Invest being the first of its kind to offer Halal investment options. Of course, it is no easy task to convince finance providers to come on board since comparatively there are few Shariah Compliant Investment options available in the market. A Halal investor cannot park their investments in Riba based transaction which is the case of the majority of the investment options available globally. Also, further restrictions are placed on Alcohol, gambling, speculative and hedging investments as well. These restrictions leave the Sharia conscious investor with lesser options for investments, which is why good advisory services are so essential to investors.


Robo Islamic Advisors (RIA)

The Islamic Banking & Finance industry can take one step further to customize robo-advisory to fit into its fold. So how can we expect these Robo Islamic Advisors to operate?


Robo Financial Advisor (RFA)

Islamic Banks can feed data into RFA’s about all the available Shariah Compliant Investment Options. This will also encourage the industry to expand its wealth management schemes because with RFAs the visibilities for those investment options are gaining momentum.

When a halal investor wants to know his returns, he can include his preferences, and the RFA’s will analyze various patterns, trends, options and give him the best results for investments. This will pave the way for a universal Islamic Wealth Management options. Anyone from anywhere can analyze and compare their results, and this will eradicate the notion that Islamic Banking is only for Muslims.


Smart Muftis

Islamic Banking rules and regulations are derived from the teachings of the Shariah. A Shariah Supervisory Board (SSB) is a must element for an Islamic Bank to operate and ensure every transaction of an Islamic Bank should be Shariah Compliant. There is a need for constant advisers and suggestions from the SSB for smooth operation. These robo advisors can do this process by evaluating the sources of Shariah and recommendations can be given or put forward by Smart Muftis based on Fatwas given already to ease the operations of Islamic Banks and financial institutions.

Mostly the management teams of Islamic Banks are not Islamic Scholars. And it is seen that the industry goes on a ‘fatwa shopping’ until they find a solution that fit into their schemes. In some cases, innovative ideas are put down by scholars if it is not fitting in. Therefore a Smart Mufti with Artificial Religious Intelligence will be welcomed by the industry since it will be able to analyze all available Islamic scriptural sources and fatwas issued over the years and provide a solution in a short period.  


Robo Mentors

Financial literacy is very vital, and it also takes an additional layer of knowledge to be part of the Islamic Finance industry. It is much needed to create awareness among the public about Islamic Banking as well. Therefore, financial literacy uplifting, corporate training and induction programs can be replaced by Robo Mentors. Allowing access to the public would also create greater awareness of the Islamic finance industry. When someone enters a question in an area, they wish to study, and a humanoid robo software can answer the queries.


By implementing robo technology, the industry can gain in areas like the following:

  • More massive visibility – a large number of audiences can gain access for investment options
  • Cost efficiency – compared to human capital, this one-time investment in Robo technology can save money.
  • Increased productivity – services can be provided for many customers at any given time. 


With these developments, we can expect the industry to embrace an augmented banking experience which will benefit everybody concerned.


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