 In this module and the next nine modules, we shall cover the topic of Sukuk. Sukuk is an instrument which is being used in Islamic banking and finance in different context. Sukuk is primarily an Islamic capital market instrument. Hence, its primary use is in this market. In order for us to understand various structures used in Islamic capital market, we must look at the concept of Sukuk first. Sukuk is actually a plural word and its singular form is Suk. This is an Arabic word Sukuk with sod and it means a note and the English word Czech is actually derived from it. So, the origin of the English word Czech is actually Arabic which is Suk. Suk would be an evidence of a contract, a conveyance of rights, obligations, monies done in conformity with Sharia. So, this was the traditional classical use of Suk. It would be an evidence of an activity, an evidence of something that must have happened between the two parties. In Urdu, it may be called this was in olden times a chit. It was a receipt which people used as evidence to show that someone has given money or someone has taken money and that receipt was used to show others and establish this evidence. In modern Islamic banking and finance, it is not a contract but rather an Islamic financial product that is based on a number of contracts. As I have been explaining that Islamic modes of financing are actually composite in nature, i.e. they involve a number of contracts and arrangements. It is not just one simple contract. Now, Sukuk in the context of capital structure. What is the nature of Sukuk? As we know that in the capital structure of a firm, there are two instruments. One is debt, the other one is equity. The question arises if Sukuk is a debt instrument or an equity instrument. In fact, the way Sukuk are structured, they can be considered as hybrid securities. As are some hybrid securities already in the conventional markets, like preference shares, they are considered as hybrid securities. In Islamic finance, Sukuk can be seen as a hybrid instrument, i.e. it may represent features of debt as well as equity. It may have some features of equity and some characteristics of debt, although in practice a lot of Sukuk, they have a lot more similarities with debt rather than equity. In recent times, a number of Sukuk have been issued which are more equity-like and less debt-like. Unlike debt, however, Sukuk is issued with reference to an asset. This is why sometimes people call Sukuk as asset-based or asset-back. Always there is an asset to which a Sukuk is associated. In certain structures, this is a requirement that that asset should pre-exist. In other structures, it is a requirement that the asset should come into being during the term of the Sukuk. In this sense, a Sukuk may have features of debt-based securities if it involves securitization of an asset. With the help of this diagram, we can depict where a Sukuk may lie on the capital structure of a firm. We have debt instruments which are on one side of the equation and we have equity instruments in between a Sukuk may lie. Sukuk may lie in the middle or in some cases if it is more like debt, it may lie somewhere here or in other cases when it depicts more equity-like characteristics, it may go somewhere here. Now, before we go into some further features of Sukuk and their structures, I would like to ask this question at the end of this module. What is the basic characteristic of equity? A, the return is guaranteed. B, it represents profit loss sharing. C, in case of loss, equity holders will be preferred over debt holders. D, equity holders are not liable for any loss. I think it is important for us to have this complete understanding of equity before we start discussing different structures of Sukuk. Now, if we say that D is the right answer, which means equity holders are not liable for any loss, this is wrong because in case of equity, the equity holders are responsible for loss as well as they enjoy any profit. In case of C, in case of loss, equity holders will be preferred over debt holders. This is not the case in case of equity either because debt holders are preferred over equity holders in the event of bankruptcy. What does this mean? It means that if a company is bankrupt, the distribution of its assets will be between debt holders first. If some assets are saved, then they will be given to equity holders. Similarly, A is wrong as well. B is the right answer which says it represents profit loss sharing. Now, A, why A is wrong because the return is not guaranteed in case of equity. It entitles the equity holders to benefit from profit and bear loss if it occurs. In case of loss, the debt holders will be preferred over equity holders as the loss of the former will be covered first before the letter as I explained earlier. And the equity holders are ultimate bearers of the loss. So, this is the basic characteristic of equity. Now, in different structures of Sukuk, we would see whether Sukuk is more like equity or more like debt. Thank you.