Counter-Guarantee Meaning: Uses, Parties and When You Need One
What is a counter-guarantee? It is an undertaking from your bank to a bank in the beneficiary's country, which lets that local bank issue the guarantee the beneficiary wants and recover any payment from your bank.
Banks call this an indirect guarantee. It turns a foreign bank's credit into a local instrument the beneficiary can accept and enforce at home.
The four parties
- 1
Applicant
Signs a counter-indemnity with its bank
- 2
Instructing bank
Issues the counter-guarantee (often MT760)
- 3
Local bank
Issues the guarantee in the beneficiary's country
- 4
Beneficiary
Holds a local guarantee it can call at home
If the beneficiary makes a complying demand, the local bank pays and then claims under the counter-guarantee. Your bank pays the local bank and debits you under the counter-indemnity. Each link is a separate, independent undertaking.
Do you need a counter-guarantee?
Does the beneficiary insist on a guarantee from a bank in its own country?
Many public employers and state buyers only accept local banks.
Must the guarantee be governed by local law or in local currency?
Local law, language and currency rules often rule out a foreign bank.
Is your bank unknown to the beneficiary, or not on its approved bank list?
Approved lists are common in tenders and EPC contracts.
Answer the three questions
We will tell you whether a direct guarantee is likely to work or a counter-guarantee is the safer route.
What counter-guarantees are used for
| Local guarantee | Protects the beneficiary against |
|---|---|
| Bid bond | A winning bidder refusing to sign the contract |
| Performance guarantee | The contractor or supplier failing to perform |
| Advance payment guarantee | Losing a down payment if work is not delivered |
| Warranty or retention guarantee | Defects after completion |
| Customs or tax guarantee | Unpaid duties or taxes owed locally |
Counter-guarantee, counter-indemnity or SBLC
A counter-guarantee runs bank to bank. A counter-indemnity is your promise to repay your own bank. A standby letter of credit can do the same job as a guarantee and is often issued under ISP98 rather than URDG 758. Our guide to UCP 600, ISP98 and URDG 758 explains the rules, and our SBLC services and credit enhancement help where your bank wants full cash cover.
Bidding or contracting abroad?
Send the tender or contract, the guarantee wording required, amount and expiry. Financely is an advisor and arranger, not a bank, and we will map the bank route and costs.
Frequently asked questions
What is a counter-guarantee in simple terms?
It is a guarantee one bank gives another bank. The applicant's bank backs a local bank, which then issues the guarantee the beneficiary asked for and can claim back from the applicant's bank if it pays.
What is the difference between a direct and an indirect guarantee?
In a direct guarantee the applicant's bank issues straight to the beneficiary. In an indirect guarantee a local bank issues to the beneficiary, backed by a counter-guarantee from the applicant's bank.
Which rules apply to counter-guarantees?
Most are issued subject to the ICC Uniform Rules for Demand Guarantees, URDG 758, which cover both guarantees and counter-guarantees.
How long should a counter-guarantee run?
Longer than the local guarantee, so the local bank can still claim after paying a demand received on the last valid day. The exact gap is agreed between the banks.
Does Financely issue counter-guarantees?
No. Financely is an advisor and arranger, not a bank. We structure the request and place it with issuing and local banks, which decide under their own credit approval.
This page is for general information only and does not constitute legal, tax or investment advice. Financely is an advisory and arranging firm, not a bank, lender or broker-dealer. Any guarantee or counter-guarantee is subject to the banks' KYC, credit approval, documentation and fees.