Introduction

There are many types of LGs but the underlying purpose is the same for all, that being a guarantee of payment to a supplier. A Payment Guarantee for example, serves as a security for the supplier should the purchaser not meet his payment obligation on a timely basis. Another type of guarantee is a Performance Bond. When a bank issues a Performance Bond, it guarantees to pay a certain sum if the seller?s contractual promise to the purchaser to make a delivery or provide a service is not met. Letters of Guarantee may also be granted for advanced payment, retention bonds, bid bonds, performance bonds, credit collateral and customs guarantees. The purpose of the letter of Guarantee is the same for all, that being a guarantee of payment to a supplier. A Payment Guarantee for example, serves as a security for the supplier should the purchaser not meet his payment obligation on a timely basis. Another type of guarantee is a Performance Bond. When a bank issues a Performance Bond, it guarantees to pay a certain sum if the seller?s contractual promise to the purchaser to make a delivery or provide a service is not met. Letters of Guarantee may also be granted for advanced payment, retention bonds, bid bonds, performance bonds, credit collateral and customs guarantees.

Product Feature
1- Characteristics and Benefits : There are three parties involve in this product: The Beneficiary: The party inviting tender or awarding the contracts. The Principal: The party tendering or the party to whom the contract has been awarded. The Guarantor: The party guaranteeing (the Bank). The guarantor, on behalf of the customer (the principal) guarantees to the beneficiary to honor the demand in accordance with the terms and conditions of the L/G up to the extend of the L/G amount if the principal failed to meet his obligations. The demand must be received within the validity of the L/G. The guarantee may be conditional or unconditional. The different types of guarantees are: Contract Guarantees: This type of guarantee is sub-divided as follows: Tender or Bid Bond: A guarantee required by the beneficiary for some percentage (normally 5%) of the contract value, allowing the principal to enter into a tender. Advance payment: A guarantee required by the beneficiary for the same value of advance payment to be made to the principal after being awarded the contract. Performance Bond or Final payment: A guarantee required by the beneficiary for a percentage of the contract value (normally 10%), to be held for a period (normally 6 months to one year) after completion of the contract. Retention Bond: A guarantee required by the beneficiary for the successful commissioning and testing of installation works. Payment Guarantees for Govt. Dept.: Payment guarantees are required for obtaining several types of license from different ministries or other local authorities, as follows: Ministry of Defense and civil aviation for licenses for opening Tourism and Travel Agency and sales of air tickets.

Ministry of Education (Academic or Technical) for licenses for opening a private school or training center or institute (English language, Computer, etc.). Port Authorities for custom clearance license. Labor Office for acquiring manpower from abroad. Ministry of Commerce for commercial registration. Ministry of Hajj for Muttwaff and other services. Financial Guarantees: A guarantee that gives a direct liability of the issuing Bank for: Payment of several types of purchases. Payment of installments for items such as cars or equipment. Granting credit facility by other Banks. Payment of Zakat (or a fine) to the Zakat Dept. Guarantees in favour of Consulates: For obtaining entry visas that are required by some consulates. For studying abroad, educational expenses guarantees. Shipping Guarantee or Endorsement of Airway Bill Required by the shipping companies or airlines to issue delivery orders in the absence of the original B/L or AWB for the goods received at Ports or Airports of K.S.A. Counter Guarantee Contract guarantees issued against the guarantees of foreign correspondent Banks.