Thematic finance a study of financial investment approach on specific trends in society or economy with broader concept related to social, environmental, or economic changes that can include clean energy, technology innovation, healthcare advancements, or demographic shifts. It considers factors like asset class and geographical region. It covers investment details of companies or industry that are related to a specific trend. The area of Islamic finance with a thematic approach in India is growing, due to increase demand for ethical and Shariah-compliant investment option, the country's significant infrastructure needs, and the potential for socially responsible and sustainable investing. However, overcoming regulatory hurdles and increasing awareness remain essential for the growth of Islamic finance, including thematic finance, in the Indian financial landscape.
Top1. Introduction
Islamic finance is a financial system (Abedifar, Shahid M. Ebrahim, Et.al 2016) that operates in accordance with the principles of Islamic law, or Shariah. The key principles of Islamic finance (Alam, Intekhab, et al. 2020) are designed to promote ethical and socially responsible financial transactions while avoiding elements that are considered unethical or exploitative in Islamic jurisprudence. Here are some of the fundamental principles of Islamic finance (Alam, Intekhab, et al. 2020) . The most prominent principle in Islamic finance is the prohibition of riba (usury or interest). Islamic law strictly forbids earning or paying interest on loans. Money should not generate money by itself. Instead, profits and returns should be generated from real economic activities and risk-sharing arrangements. It also encourages risk-sharing between the financial institution and the customer. In Musharakah, both parties contribute capital and share profits and losses in proportion to their investments. In Mudarabah, one party provides the capital, and the other party provides the expertise and management, and they share the profits. All financial transactions in Islamic finance must be backed by tangible assets or services it is known as Asset backed financing. Financing should be linked to real economic activity and have an underlying physical asset, such as real estate or commodities.
Islamic finance avoids excessive uncertainty (gharar) and gambling (maisir). Contracts should be transparent, and parties involved should clearly understand the terms and conditions. Islamic finance encourages the redistribution of wealth through Zakat, which is a mandatory almsgiving requirement. A portion of an individual's wealth is given to those in need, helping to reduce economic disparities.
Islamic finance (Atif, Mohammad, M. Kabir Hassan,et.al 2021) promotes ethical and socially responsible investment and business practices. Investments in industries such as alcohol, gambling, pork, and any business considered harmful to society are prohibited. Ijara is a form of leasing where the financial institution purchases the asset and leases it to the customer for a specific period. At the end of the lease term, the customer may have the option to purchase the asset at an agreed-upon price. Sukuk are financial instruments that provide investors with a share in the ownership of an underlying asset. The returns to investors are based on the profit generated by the underlying asset. Sukuk are a Shariah-compliant alternative to conventional bonds.
Takaful is an Islamic insurance system where participants pool their resources to provide mutual financial assistance and support to those who suffer losses. It operates on the principle of shared responsibility and solidarity. To ensure compliance with Islamic principles, financial institutions in Islamic finance have Shariah boards or advisors that review and approve financial products and transactions to ensure they adhere to Shariah principles.
These principles are designed to create a financial system that is more equitable, fair, and just, promoting economic growth while adhering to ethical and moral values as prescribed by Islamic law. Islamic finance has gained prominence globally, and it continues to evolve and adapt to modern financial markets while maintaining its core principles.