Issuance of Guarantee (direct) :

For the issuance of letter of guarantee (hereinafter appears as LG), one needs to be present at one of foreign exchange branches of Bank Day and fill in some application forms and presents them to clerk. The issuance of LG would of course be possible if the customer fulfills the requirement of the Bank Day. For more information, please call +982128931011 or visit en.bank-day.ir

In general, as simply understood, every LG presently should be issued based on an underlying relationship going between applicant and beneficiary. This underlying relationship may be in the form of a signed contract or else. From the issuer’s perspective, letter of guarantee goes into two types : Direct and indirect. In Direct form, we issue guarantee in favor of beneficiary, whereas in the indirect form, we issue a counter guarantee (hereinafter appears as CG). This would happen when a counter guarantee is presented to the beneficiary’s bank by an instructing bank. In fact, in this case, we as an instructing bank issue a CG based on which a guarantee is issued by the beneficiary’s bank. The process of direct and indirect guarantee is presented in the following picture :

Direct Guarantee
Direct Guarantee


All in all, four types of guarantees are issued based on the latest version of CBI’s circulations. They are included advance payment, performance, tender/bid and retention money

Tender Guarantee: A tender guarantee (also called a tender bond or bid bond) is requested from the applicant during the tender processes. The aim of the tender guarantee is to make sure that the applicant submits workable bids under the tender. A tender guarantee protects the beneficiary against applicant’s acts of injustice. By having the tender guarantee, the beneficiary knows that the applicant will comply with the terms of the contract in the event that the tender is accepted. Bid bonds are usually issued for 2% to 5% of the tender amount.

Advance Payment Guarantee: An advance payment guarantee secures the advance payment made by applicant if the beneficiary does not fulfill its obligations. Advance payment guarantees are frequently issued for the exact amount of advance payment that has been given to the beneficiary.

Performance Guarantee: A performance guarantee (also called a performance bond) protects the beneficiary against the failure of the applicant to meet its contractual obligations. Performance guarantees are generally issued for 10% to 20% of the contract total; however the guarantee amount may be constraint by the local law of the beneficiary's country.

Retention Money Guarantee: In big projects such as building a factory plant, supply of complicated machineries and other capital goods, it is often determined that the beneficiary may keep around 10% of the contract amount for a further period of time even after the applicant delivered the goods or completed the assembly, for example 18 months after the production plant up and running.

The applicant may want to have the full contract amount before the end of this extended period (in the example given above, 18 months) by issuing a retention guarantee that covers the amount that would otherwise be withheld by the beneficiary. The applicant will request its bank to issue a retention guarantee in favor of the beneficiary. Once the beneficiary receives the retention guarantee he will transfer the amount of the guarantee amount direct to the applicant by T/T payment. The other forms also can be possible issued if related permission is taken from CBI.




Issuance of counter guarantee:

As told before, CG is issued when an applicant is requested to present a guarantee from a bank which is accepted by the beneficiary. In this situation, two banks are involved, one related to beneficiary another related to applicant. Between two banks,there should be corresponding relations.
As illustrated below, applicant instructs its bank to issue a counter guarantee. By this C/G which is issued in favor of beneficiary’s bank, applicant’s bank instructs the beneficiary’s bank to issue a final guarantee against the C/G issued by the applicant’s bank. This process would be implemented through SWIFT messages and also related operations including amendment, acknowledgment of guarantee and advising of reduction or release. MT 760 is allocated to instruct the second bank (beneficiary’s bank) in order to issue the main guarantee (number 4) in favor of beneficiary.


Indirect Guarantee
Indirect Guarantee
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