Deferred Payment Guarantee: Jaiib/DBF Paper 3 (Module B) Unit-8

Deferred Payment Guarantee: Jaiib/DBF Paper 3 (Module B) Unit-8

Dear bankers,

As we all know that is Deferred Payment Guarantee for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are Deferred Payment Guarantee (Unit-8), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Deferred Payment Guarantee

• A third Party, mostly banks and financial institutions, guarantee the payment of the instalments. This guarantee ensure timely payment of the instalments to the seller/exporter, failing which, the guarantee can be invoked and payment received. To understand better the deferred payment guarantee, it is necessary to understand how a payment is made in a deferred payment contract and how the same is guaranteed by a bank.

♦Method of Payment

In a contract for import of goods on deferred payment terms, the importer is required to make payments in instalments over a period of time which may range from 1 to 7 years, in a normal deferred payment contract. The payment is usually done on the following terms:

• Advance payment of 10% to 15% of the price of the goods is made by the buyer.
• Another 10% to 15% on receipt of document under letter of credit.
• The balance amount is paid in instalments spread over a period of 1 to 7 years, which is secured by a ‘Deferred Payment Guarantee’.

In a deferred payment guarantee, which as stated earlier, issued by banks and financial institutions , what is guaranteed, is the timely payment of instalments and interest if provided. This is done by issuing a deferred payment guarantee in which the following terms are mandatory:

• The supply of goods by the seller to the buyer and the seller agreeing to postpone the payment of the price, this being the consideration of the guarantee;
• The Payment schedule of both the instalment and the interest;
• The unconditional and irrevocable assurance of the bank that it would make payments on the invocation of the guarantee.

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