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. For example, a bid bond for a construction project may have different requirements than an advance payment guarantee for importing goods. 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. Depending on the nature of the transaction, a longer or shorter duration may be required. It is important for banks to communicate clearly with their clients regarding the duration of the guarantee and any potential risks involved. In addition, banks should also consider offering value-added services such as advisory services to their clients to help them understand the risks associated with international trade and how to mitigate them. This can include providing information on foreign exchange rates, country risk assessments, and legal requirements.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. Any disputes that arise should be resolved fairly and efficiently.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.Moreover, banks in Ethiopia should ensure that their demand guarantee services are easily accessible to all clients. This means providing online platforms for application and tracking of demand guarantees, as well as offering support through phone and email. By making the process more convenient and efficient, banks can attract more clients and improve customer satisfaction. Another important aspect that banks in Ethiopia should consider is the cost of demand guarantee services. While it is important to maintain profitability, excessive fees and charges can deter clients from using these services. Banks should strive to offer competitive pricing while still ensuring that they have sufficient collateral to back up their guarantees.In addition, banks should also invest in technology and training to improve the efficiency of their demand guarantee operations. This includes implementing automated systems for processing applications and reducing manual errors, as well as providing regular training for staff on best practices and industry developments.Overall, by providing tailored, reliable, and efficient demand guarantee services that adhere to URDG 758 guidelines and local regulations, banks in Ethiopia can play a critical role in supporting international trade and promoting economic growth.Furthermore, it is crucial for banks to have a clear understanding of the underlying transaction and the associated risks when issuing demand guarantees. This requires thorough due diligence on the applicant's financial standing and creditworthiness, as well as an assessment of the political and economic environment in which the transaction takes place. Banks should also consider obtaining external advice from legal and financial experts to ensure that they are adequately protected against potential risks. In addition, banks should explore new opportunities to expand their demand guarantee services beyond traditional sectors such as construction and import/export. For instance, they could offer guarantees for emerging industries such as renewable energy or technology startups. By doing so, they can diversify their portfolio and attract a wider range of clients.Finally, banks should prioritize customer service by providing timely and accurate information to clients throughout the demand guarantee process. This includes keeping clients informed about the status of their applications, responding promptly to inquiries or concerns, and providing regular updates on any changes to terms or conditions.In conclusion, demand guarantees are an essential tool for facilitating international trade, but their effectiveness depends on the quality of services provided by banks in Ethiopia. By adhering to URDG 758 guidelines, tailoring their services to meet specific client needs, investing in technology and training, and prioritizing customer service, banks can play a critical role in supporting economic growth while minimizing risk for all parties involved.
