Fintech Adoption, Artificial Intelligence, and Financial Stability: An Analysis of the Islamic Banking Sector of OIC Countries

Authors

  • Yasir Islam Department of Economics, The University of Lahore, Lahore, Pakistan
  • Aribah Aslam Department of Economics, The University of Lahore, Lahore, Pakistan
  • Ghulam Ghouse Department of Economics, The University of Lahore, Lahore, Pakistan https://orcid.org/0000-0003-2137-3941

DOI:

https://doi.org/10.52223/econimpact.2025.7112

Keywords:

Artificial intelligence, Fintech, Macroeconomic variables, Philips curve, Financial stability

Abstract

Artificial intelligence (AI) and financial technology (fintech) are transforming the banking sector, not only in conventional systems but also within Islamic banking. There is a pressing need to assess the impact of AI-based fintech on the financial stability of Islamic banks. This study investigates the effects of AI and fintech, considering direct, indirect, mediating, and moderating relationships. The analysis is based on data from 2020 to 2023 for 35 selected OIC countries, using sources such as the World Development Indicators (WDI) and annual bank statements. A panel structural equation model (P-SEM) is employed to examine both direct and indirect path effects. The results show that capital adequacy and capitalization positively affect financial stability. In contrast, liquidity risk has a negative impact. Management quality also plays a significant role in enhancing financial stability. Among fintech indicators, the market and regulatory environment emerges as the most influential variable. However, due to the relatively small size of fintech in these economies, its direct impact may still appear negative. Despite this, fintech remains a crucial factor in promoting financial stability, as supported by the literature. The mediation effect of AI and fintech in this study is found to be positive and significant. Overall, this study provides a comprehensive and timely analysis of the AI-driven role of fintech in enhancing financial stability and supporting economic growth in the banking sector. It considers both financial and macroeconomic control variables and highlights the key importance of capitalization and management quality in maintaining stability.

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Published

2025-04-30

How to Cite

Islam, Y., Aslam, A. and Ghouse, G. (2025) “Fintech Adoption, Artificial Intelligence, and Financial Stability: An Analysis of the Islamic Banking Sector of OIC Countries”, Journal of Economic Impact, 7(1), pp. 103–109. doi: 10.52223/econimpact.2025.7112.

Issue

Section

Research Articles