Letter of Guarantee- Labour

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Letter of Guarantee is ideally issued by Bank's where the buyer and the seller or a service provider does not want to risk their payment and also does not want to get below standard service. In short, a guarantee is issued by Banks confirming that payment will be made to beneficiary for the amount mentioned in the guarantee letter if the conditions on the guarantee letter are met.

As mentioned in my earlier post their are many kinds of guarantees and the guarantee can be issued by the Bank against a security deposit or can also be unsecured.

The first type of guarantee is a labour guarantee. This is prevalent mainly in the middle east where the governments requires employers to provide a labour guarantee to them before a work permit or visa is issued for that individual. Labour guarantee since is a legal requirement is issued only on cash margin and the Bank does not pay the customer any interest on the amount kept on hold. This is due to the fact that labour guarantees can be renewed every year and sometimes continues for 50-60 years as this is a requirement for visa and the company may choose to employ the same person or hire some other person on the amount already placed with the government as a guarantee.

Again, labour guarantees are not issued against fixed deposits as Bank pays interest to customers on the amount placed with them and these can be used to avail other type of guarantees or facilities but not labour guarantees.

Lastly, standard charges are applied on the issuance of labour guarantess and no charge is levied on the renewal of such guarantees every year. The charges are defined by Banks and may vary from Bank to Bank, as mentioned in my earlier blogs, list of charges are generally published on the Bank's website and is also communicated to the customer at the time of availing this guarantee.