Types of foreign exchange guarantees

Pursuant to Article 684 of the Civil Code, a guarantee contract is to assume the financial responsibility of another financial person. Fails to pay or refuses to fulfill its obligations correctly and on time for any reason, as soon as the beneficiary (the subject or the organization against whom the guarantee is issued) announces before the expiration date, the guarantee amount or the amount stated in the guarantee To pay the beneficiary (subject).

Bank guarantees are non-transferable and can only be used by the beneficiary listed in the text of the guarantee. All commercial companies (or natural persons) can benefit from the services of issuing various guarantees of Tejarat Bank. Issuance of guarantee and endorsement by banks is subject to obtaining collateral from the guarantor (subject matter) in accordance with the bank’s rules.

Foreign exchange guarantees typically apply to foreign exchange contracts, purchases of goods or services from foreign companies and customers, and Tejarat Bank issues guarantees in favor of Iranian companies (buyers and employers) with mutual guarantees from reputable foreign banks.

APG prepayment guarantee:

In some contracts, the seller requests that a percentage of the value of the contract be given to him in advance. For this reason, in order to have sufficient certainty that the seller will deliver the goods in return for the money received, he is asked to provide a guarantee for receiving the advance payment. The purpose of such payments is usually for the seller to have sufficient cash to purchase the materials and components needed to make the goods, or to be able to pay for the transportation of machinery to the project site and the wages of the workers. In some cases, because the product is unique and only needed by the private buyer, in order for the seller to be more confident in starting his work, he requests an advance payment of 10 or 20% of the value of the product. Because if the buyer suddenly stops buying this device for some reason during the execution of the contract, the seller will have a lot of problems in selling the device to another customer, and for this reason, he will request an advance payment to have enough coverage on the one hand. On the other hand, the buyer has announced his firm decision to buy with this payment and will not be able to simply cancel his previous decision. Read more.

In contracts where freight is permitted, the amount of the advance payment guarantee is usually reduced in proportion to the goods delivered, and the payment is made in proportion to the goods delivered minus the percentage of the prepaid goods. For example, if a machine worth 1,000,000 marks is purchased and 20% of it is prepaid and 30% of the total goods are shipped in the first shipment, the amount to be paid for this shipment should be 300,000 in principle, but because 20% has already been paid. Therefore :

600,000 = 2 × 300,000

The amount will be payable to the brand.

The validity period of the prepayment guarantee is usually until the contract is executed and in documentary credits it will be valid for at least one month after the expiration date of the credit.

The prepayment amount varies depending on the agreement of the parties, but is usually about 5 to 25 percent of the total credit amount.

It is important to note that in some projects or factories, a small part plays a key role in setting up that project or that factory, and the seller may deliver it until the last moment of delivery of the entire factory or Delay the project; Therefore, if such a part or plan is not delivered, the use of the factory may be defective or it can be used at a high cost. Therefore, in such cases, it is better that the advance payment guarantee is not reduced until the moment of full delivery of the project or the contracted factory, so that the buyer has enough leverage to control the contract.


A bank guarantee is a contract that is concluded between the bank (guarantor) and the beneficiary or subject (BENEFICIARY) and according to which the bank undertakes to pay the beneficiary in writing upon the request of the guarantee and during the maturity. To pay. The warranty may be issued unconditionally and on demand (UNCONDITIONAL / ON FIRST DEMAND) or conditionally (CONDITIONAL). From a legal point of view, a bank guarantee is concluded between the guarantor bank and the beneficiary of the guarantee, but in the real world, the starting point and main support of the bank guarantee is the request and order of the bank customer, who is called the guarantor or APPLICANT. It is usually a contract that has already been concluded between the guarantor and the beneficiary of the guarantee. But this apparent dependence, except in exceptional cases, has no effect on the independence of the bank guarantee. In other words, the guarantee is independent of the basic contract.

Since unconditional and on-demand guarantees in international trade have been highly welcomed by stakeholders, guarantees are generally issued on-demand.

In fact, a bank guarantee upon request is a valid and documented written statement in which the bank issuing the guarantee (guarantor) undertakes unconditionally whenever the guarantor refuses to fulfill his obligation to the party to the transaction. The obligee stated in the text of the guarantee shall make a request to the beneficiary without the need to provide any evidence or reason.

Types of bank guarantees from a thematic point of view

– Tender guarantee

Usually, when buying goods and implementing projects or in the case of selling goods at international levels, especially in the public and public sectors, the relevant organizations and agencies are obliged to announce the situation through the press and mass media so that the bidders can present the best offer. Participate in tenders or auctions. Bidders must indicate the seriousness of their company’s intention by providing a warranty, technical specifications and price offer, and also show that they do not intend to leave the tender / auction procedure before it is completed or if they win the tender. Or they will sign a subsequent contract auction.

– Good performance guarantee

In essence, a performance guarantee (GPG) can be considered the equivalent of a letter of credit. Just as a letter of credit covers the payment made by the buyer if the seller performs correctly in accordance with the terms of the letter of credit, a performance guarantee also covers the payment of the importer or employer if the exporter or contractor fails to meet its obligations or in a timely manner. Or guarantees that it does not function completely and properly.

The amount of the guarantee of good performance is one percent of the amount of the contract and its amount is determined and announced based on the agreement of the parties, which is usually between? until the ?? It is a percentage, but depending on the terms of the contract, the percentage can be increased.

– Advance payment guarantee (advance payment guarantee)

In most basic contracts, the exporter or contractor receives a percentage of the contract value that is usually between? until the ?? The percentage is agreed with the employer or the buyer because the contracting party needs to receive in advance in order to be able to provide the necessary and initial financial resources to fulfill its obligations or contract. In order for the importer or the employer to pay such an amount, a guarantee is required, which is provided by providing an advance payment guarantee (APG).

– Retention money guarantee

Usually in construction or project contracts, amounts are made as intermediate payments. Such payments are made when the project engineer confirms that part of the project has been completed or confirms the installation test of the relevant phase provided. These intermediate payments enable the contractor to have the necessary liquidity during the project operation. On the other hand, the employer pays a percentage of these payments between? until the ?? It keeps the percentage according to the volume of the project, so that finally, after the end of the project and after ensuring the proper execution of the work and the relevant operations, it releases the owed amounts in favor of the contractor. Employers and contractors often agree to deduct these deducted amounts, known as collateral deductions, in favor of the contractor, provided that a guarantee is issued in exchange for a guarantee called a refund guarantee. A refund guarantee can be claimed if the contractor breaches its obligation to complete the project.

– Customs guarantee (customS guarantee)

This type of warranty applies when the warranty applicant requests to attend an international exhibition in another country, or when the project requires the temporary importation of special equipment, so that the applicant does not pay the customs warranty. Apply for this type of guarantee in favor of the customs of the host country. The customs of the relevant country can demand the guarantee in question if the goods in question do not leave the country in due time or if customs duties and taxes are not paid.

– Payment guarantee

A guarantee can be issued to cover many items of payment obligations, for example, in connection with the sale contract guarantee, lease agreements, construction contracts, loans, bonds or any other financial obligation, the payment guarantee can be used. In recent years, the demand for letters of credit to replace letters of credit has increased dramatically, and the difference between the two instruments is that settlement and payment under ordinary letters of credit are made when other parties involved in letters of credit fulfill their defined duties. While the beneficiary of a guarantee of payment obligation, in the first place must receive the amount from the buyer or the original obligor, and if the buyer fails to pay, the beneficiary can claim the guarantee by referring to the bank.

– Other guarantees

In addition to covering the various risks mentioned above, bank guarantees can be used to cover many other types of risks that exist in commercial and international transactions. Judicial guarantees, one of the most important types of which is the “ship seizure release guarantee” can be considered from this group.

Types of bank guarantees in terms of how to issue

Bank guarantees are divided into two categories, direct and indirect, in that they are issued directly by the bank for the benefit of the beneficiary or through an intermediary bank.


In direct guarantees, the bank issues its guarantee directly to the beneficiary after receiving the guarantee issuance request from the subject.

At present, acceptance and notification of direct guarantees by Iranian banks in the country in connection with documentary credits and foreign exchange contracts that are provided from the applicant’s foreign exchange is allowed if the interested party accepts all the responsibilities.

In addition, acceptance and notification of direct guarantees issued by Iranian banks, branches of Iranian banks abroad and units of Iranian banks, acceptance of responsibilities by the beneficiary is also possible.

If customers wish to use direct guarantees, it is recommended to study the views of the Central Bank of the Islamic Republic of Iran regarding the acceptance of direct guarantees.


In some cases, the guarantor of the guarantee requests the issuance of a guarantee through a specific bank or bank in his country, in which case the guarantor bank issues a reciprocal guarantee in favor of the bank in question and instructs that bank to issue the original guarantee. Obviously, if a reciprocal guarantee is accepted by the ordering bank or that bank, it will issue a guarantee. Otherwise, it will announce its refusal or request for corrections in the communicated text to the brokerage bank.

Types of bank guarantees from the point of view of economic activity

Foreign exchange guarantees are divided into export and import in terms of economic activity.

A – Export guarantees

Export guarantees are those guarantees that are issued at the request of the Iranian parties in favor of foreign or Iranian parties of the International Trade Company. Such guarantees are divided into four sections:

1- Production goods (industrial, agricultural, mineral, etc.):

Issuance of foreign exchange guarantees for participation in the tender, good performance, advance payment and refund of guarantee deduction for exporters of agricultural, mineral, etc. industrial goods is possible in full compliance with the issued instructions.

2 – Technical and engineering services:

Issuance of foreign exchange guarantees for participation in the tender, good performance of advance payment and refund of guarantee deduction for exporters of technical and engineering services is possible in accordance with the regulations of government support for export of technical and engineering services in compliance with relevant regulations.

3- Internal contracts:

Issuance of foreign exchange guarantees for participation in tenders, good performance, prepayment and deduction of guarantees required by contractors, consultants and internal builders who all or part of the work of consulting engineering services, design, contracting, construction, installation and equipment of projects of ministries and institutions , Government organizations and companies, public institutions and agencies and all agencies whose inclusion in the law requires the mention of names and their subsidiaries operate within the country is possible by observing the relevant instructions and regulations.

4 – Issuance of other foreign exchange guarantees:

Other foreign currency guarantees requested by customers are possible after review and, if necessary, obtaining the necessary permits.

B – Imported guarantees:

Imported guarantees are those guarantees that are issued at the request of foreign customers or against the mutual guarantee (COUNTER GUARANTEE) of foreign brokers in favor of the Iranian parties.

Issuance of guarantee based on mutual guarantee of valid foreign brokers is possible after obtaining a license from the Central Bank of the Islamic Republic of Iran.

The law governing guarantees

In general, the law governing guarantees is the law of the country issuing the guarantee. However, if the parties to the guarantee agree, they can apply the law of a third country to the guarantee with the agreement of the relevant banks.

Case regulations from the Paris International Chamber of Commerce

Due to the importance of guarantees in international trade, the International Chamber of Commerce, based in Paris, has tried to coordinate the rules and regulations for guarantees in international trade between different countries with different legal and cultural backgrounds. And thus accelerate and facilitate international trade.

The relevant rules in the International Chamber of Commerce are:

1- Uniform provisions of contract guarantees (Issue No. 426):


These regulations are not accepted in Iran.

2- International provisions of guarantees:


These regulations have not been accepted in Iran so far.