Uniform Demand Guarantee Rules in Ethiopia Specific to Banks: Call for Application of ICC URDG 758 in Ethiopian Banking

Demand Guarantee is a vital financial instrument that ensures the trade between parties in various sectors. It is an assurance from the bank to the beneficiary that the obligation of a third party – usually the applicant – will be fulfilled under the terms and conditions of the guarantee.

In Ethiopia, banks follow ICC URDG 758 (International Chamber of Commerce Uniform Rules for Demand Guarantee) guidelines to issue demand guarantees. Albeit the fact that Ethiopia is not signatory to the New York Convention, UNITED NATIONS CONVENTION ON INDEPENDENT GUARANTEES AND STAND-BY LETTERS OF CREDIT (1996). In essence, URDG 758 is a document prepared by the International Chamber of Commerce (ICC) to standardize the practices of issuing demand guarantees worldwide. The Federal Supreme Court Cassation Benches' decision seem to juxtaposition or unduly upholding the application of the provisions of the civil code of Ethiopia of surety on Demand Guarantees.

URDG 758 offers clarity on what can be demanded by the beneficiary, the conditions that must be met by the applicant, and the obligations of the bank in guaranteeing the transaction. As a result, it provides a predictable and reliable framework for international trade.

Banks in Ethiopia are the major players in demand guarantee services. They provide various forms of demand guarantees such as bid bonds, performance guarantees, advance payment guarantees, and others. Banks issuing demand guarantees should follow the Ethiopian Bankers Association guidelines, if any or develop one for uniformity, for Demand Guarantee operations.

To conclude, demand guarantees play a significant role in ensuring the smooth operation of international trade. Ethiopia, like many other countries, is following URDG 758 guidelines to regulate the issuance of demand guarantees. Banks that follow these guidelines ensure predictable, reliable, and effective trade services to their clients.

In addition to following URDG 758 guidelines, it is important for banks in Ethiopia to provide guarantees that are specific to their clients' needs. This means that the bank must understand the nature of the transaction and tailor the guarantee accordingly.

Furthermore, demand guarantees should be backed by sufficient collateral to ensure that the bank can fulfill its obligation in case of default by the applicant. This is particularly important in Ethiopia where there is a high risk of non-payment due to economic and political instability.

Overall, demand guarantees are crucial for international trade and banks in Ethiopia must ensure that they provide reliable and effective services to their clients while adhering to URDG 758 guidelines and local regulations.

Moreover, banks in Ethiopia should also consider the duration of the guarantee when issuing demand guarantees. Banks should also consider offering value-added services such as advisory services to help clients understand the risks associated with international trade and how to mitigate them.

Finally, it is essential for banks in Ethiopia to maintain a high level of professionalism and transparency when dealing with demand guarantees. Clients should be provided with clear and concise information about fees, charges, and other terms and conditions.

In conclusion, while URDG 758 provides a standard framework for issuing demand guarantees worldwide, banks in Ethiopia must also consider local regulations and tailor their services to meet the specific needs of their clients. By doing so, they can provide reliable and effective trade services that support international commerce while minimizing risk for all parties involved.