Non-Fund Based Credit
Non-fund based credit facilities, such as Bank Guarantees and Letters of Credit (LCs), help SMEs in Tanzania by providing financial assurance to third parties without direct cash disbursement
Account Overview
Non-fund based credit facilities, such as Bank Guarantees and Letters of Credit (LCs), help SMEs in Tanzania by providing financial assurance to third parties without direct cash disbursement
Bank Guarantees
Bank guarantees (BGs) are undertakings issued by banks on behalf of their customers to cover losses that may occur.
BGs are increasingly used in contractual agreements for large projects/performance contracts with the government/large companies. These include the following:
• Bid bond (tender) guarantee
• Performance guarantee
• Advance payment guarantee
• Retention money / earnest money deposit guarantee
• Financial guarantee
The letter of guarantee will be issued on behalf of a customer after the credit vetting and approval process, as with any other credit facility. The appraisal will be aimed at assessing the borrower’s ability to complete the project/contract for which the BG is being issued.
Terms and conditions
• All guarantees shall have a fixed expiry date and a limited amount
• The bank shall charge a guarantee commission periodically (quarterly, semi-annually and annually on renewal) as approved
• The issuance or acceptance of any kind of guarantee for a customer in favor of a beneficiary located in another country should be made in accordance with the foreign exchange regulations of the country.
• The customer shall avail suitable counter guarantee/indemnity
• The guarantee shall require the bank to pay on first demand
• Credit appraisal criteria to be satisfied
• The maximum term for a bank guarantee is one year and shall be renewable at the bank’s discretion
• Guarantees of perpetual nature (open-ended guarantees) shall be issued against 100% cash cover in the same currency, which shall be held by the bank till the beneficiary of the guarantee specifically releases the bank from its guarantee obligations.
Letter of Credit
Letters of credit enable business to offer secure payment terms to suppliers while ensuring the prompt delivery of the goods and services.
Regular LC limits can be established by the bank after normal bank appraisal, risk assessment and security analysis. Due consideration has to be taken of the mature of the goods being imported, country risk and exporters credit report amongst others.
All goods under any LC must be cosigned to the bank for the amount of the customer (usual terminology bank / notify x, the customer).
