Bank Guarantee-i is an irrevocable obligation in the form of written undertaking of a Bank to pay an agreed sum, in case of default by a third party in fulfilling their obligations under the terms of the Bank Guarantee-i.

Customer approaches the Bank for guaranteed surety. The Bank agrees to discharge the customer's liability in case of defaults. The Bank gives the guarantee under the concept of Kafalah . Bank Guarantee-i is not a financing instruments but merely a guarantee.

a) The concept of Al-Kafalah refers to guarantee in regard to two categories

i. Guarantee in regard to goods :

Refers to the guarantee provided by a person to the owner of a goods who had placed or deposited his goods with a third person, whereby any subsequent claim by the owner for his goods must be met by the guarantor and the third person.

ii. Guarantee on a person :

Refers to the guarantee provided by a person (1 st party) to the 2 nd Party whereby the 1 st Party guarantees joint-responsibility with the 3 rd Party.

b) Bank Guarantee may be issued in respect of ‘Performance of a task'.

Types of guarantee:

1.1 Tender Guarantee/Bid Bond

This guarantee is issued to government, semi-government or private bodies in lieu a certain sum to be deposited with them as ‘Earnest Money' when they call for tenders. Tender Guarantee/Bid Bond is required as an indication of good faith that the tenderer is serious in tendering for the contract.

1.2 Performance/Contract Guarantee

Sometimes called Security Guarantee. It is issued on behalf of the successful tenderer in favour of the principal. The contract requires the contractor to provide the principal with a deposit for a nominal sum of the contract value in lieu of which a performance guarantee provided by the bank is acceptable. This will act as an assurance that the contractor will fulfill his obligation.

1.3 Credit Guarantee/Supply Guarantee

This guarantee is issued to a supplier who extended his credit facility to our customer for the purchase of goods on credit and therefore, it acts as a security deposit.

1.4 Custom Bond

This type of guarantee is only issued to the Custom Department. For instance, a forwarding agent is required to furnish to the Custom Department a custom bond to guarantee the good behaviour of its employees.

Also included under this category is the guarantee in respect of temporary importation of goods into Malaysia . Certain goods are imported as samples or for temporary use.

1.5 Guarantee for Exemption of Custom Duties

This guarantee is used for import ation of goods into Malaysia on temporary basis goods are exempted from import duties provided they are re-exported. The Custom Department requires a bank guarantee to ensure that the goods are re-exported on time failing which a claim will be made under the bank guarantee.

1.6 Advance Payment Guarantee

The Bank issues this guarantee to government bodies that have granted the contract to the customer (the contractor). Advance Payment Guarantee allows the government to gives advance payment to the contractor in order to carry out government projects according to the terms and conditions of the contract.

1.7 Guarantee for Honouring of Cheque

This type of guarantee is issued to government departments to ensure that such issuance cheque would be good for payment upon presentation.