BONDS AND GUARANTEES
 

 
Product Description
 

Where a party to a business transaction insists on the provision of a guarantee or bond as means of securing the terms of a contract; the Bank provides such support in favour of the third party. The provision of Bonds and Guarantees facilitates the trading activities of businesses, and also assists them in tendering as well as the negotiation of better terms.

 

  

 

Features
The Bank offers the following types of contingent liability instruments:

Tender Guarantees (Bid Bonds)
A Bank guarantee will be required by buyers and tender committees to support a tender for a contract. The guarantee is usually for an amount between 1% and 5% of the contract value. The Bank’s guarantee in support of a tender is an indication to a buyer or tender committee that the tender is a serious offer and that the party submitting it is financially competent to enter into the undertaking. The guarantee also indicates that on award of the contract, subsequent guarantee requirements to secure performance and/or advance payments will be forthcoming. 

 

Performance Guarantees
This is an undertaking to pay a specified sum of money to a third party in the event of failure to carry out the terms of the contract. This type of guarantee is most commonly required to secure performance and is usually for amounts between 5% and 10% of the contract value.

 

Advance Payment guarantee
This form of guarantee is usually required as security for money released where, under the terms of the contract, an advance payment is to be made to cover the initial costs of commencing contractual work. The amount of an advance payment varies between 10% and 20% of the contract value. 

 

Retention Money guarantee
There are contracts which require that a percentage of each payment should be withheld until the project has been completed and accepted. A retention money guarantee enables the business to receive the total amount of each payment while assuring the other party that the funds will be payable in the event of failure of performance.

 

Maintenance guarantee
The purpose of the above guarantee is to ensure that once construction has been completed the obligation of the contractor will be fulfilled during the maintenance period.

 

ZRA Customs Bond
Payments to ZRA Customs and Excise need to be confirmed before the merchandise can be moved from any port. This requirement can cause delays in shipments and business transactions, but guarantees issued by the Bank are acceptable to ZRA and allow merchandise to be transported more expeditiously. Additionally, guarantees can be arranged for customs authority to permit the temporary import/export of samples or exhibits without payment of customs duty.

 

Administration of contingent liability instruments

 

Amount
The minimum amount considered is US$ 20,000 or the Kwacha equivalent. The amount of the guarantee / bond must be clearly defined with no underlying contractual obligations imposed on the Bank.

 

Tenure/Period
All guarantees issued by the Bank indicate a fixed expiry date after which the Bank will not accept claims. Normally, guarantees are for periods between 90 days and 365 days.

 

Charges
A commission of up to 5% of the value of guarantee is collected in advance depending on the duration, amount guaranteed and security provided. An additional commission is collected if the amount of guarantee is increased, or the tenure of the guarantee is extended.

 

Security
 Requirements consist of one or a combination of the following security:

·         Full cash cover

·         Quasi cash instruments like treasury bills, GRZ bonds, quoted shares

·         Joint and several guarantees of the Shareholders/Directors

·         First legal mortgage on land and buildings

·         Debentures where these already exist with other lenders, the Bank will request for pari-passu ranking

In addition, the customer is required to execute a Counter-Indemnity which is an undertaking to pay the Bank in the event of default.

 

Application for contingent liability instruments
(See application procedures and guidelines)