Sukuk is common in Islamic finance and is the Arabic term for financial certificates. It is the equivalent of bonds, which are common in the western world. Since earning interest is not allowed in Islam, Sukuk bonds are structured to fulfill Islamic law, which prohibits charging and paying interest. If a financial instrument complies with Islamic law, it can be categorized in accordance with its tradability and non-tradability in secondary markets.
Sukuk bonds are structured in a manner where the issuer of the Sukuk sells the financial certificate to the investor, who in turn may rent it back to the Sukuk issuer for a prearranged fee. The issuer will also pledge to buy back the Sukuk bond at the same value at a future date. Due to a ban on debt trading under Shariah law, a Sukuk bond must be associated with the cash flow and return of the funding to the purchased asset.