With a counter-guarantee, the issuer, usually a bank, receives compensation from the EKN if the beneficiary demands payment of the contractual guarantee. EKN calculates a premium that reflects the market price of the risk and cost of the transaction. The premium is shown as a percentage of the guaranteed amount. A counter-guarantee is an individual and independent form. It is bound only by its own rules. Such independence is legally important. A bank guarantee can be defined as a written obligation whereby, at the request of its client (the applicant), a bank irrevocably agrees to pay a sum of money to a third party (the beneficiary) after the beneficiary has received a debt from the beneficiary who informs the bank that the plaintiff has not fulfilled its obligations under the underlying business contract. Although the counter-guarantee protects the bond, it is the exporter who must ask for it and not the guarantor. In addition, the counter-guarantee is independent of the underlying transaction and all instructions received by the instructional bank. For example, a bank guarantee from an Afghan bank would mean nothing to a U.S.-based production SME. ”The requirement of a counter-guarantee for all IDA PRGS is an advantage in some situations, but a restriction in others.
The IBRD agreement stipulates that IBRD guarantees must be guaranteed by a state counter-guarantee, but not IDA articles. Instead, the requirement for a meter guarantee for all IDA warranties is a board decision. While in some circumstances there are obvious benefits to requiring a counter-guarantee – such as the need to fully involve the Department of Finance in a project – in other cases, the counter-guarantee requirement may be less necessary and serves to prevent state engagement because of its effects on potential liability” (The World Bank Washington, 2009, p. 50) Therefore , the counter-guarantee is linked to their own business terms. The independence of a counter-guarantee has a gigantic effect in legal situations. EKN issues the meter guarantee and you pay the premium. If the total premium is paid in advance, there is a 10 per cent discount. If you decide to pay the premium in installments during the term of the warranty, it is your responsibility to ensure that payments are made in a timely manner. The counter-guarantee provides security (it is a guarantee obligation) in favour of the surety.
The bond can be a bank or a bond company. The counter-guarantee largely relieves the guarantee of the risk that it will not be able to successfully terminate the compensation paid to the exporter. If the bond is called, the federal government will repay the guaranteed portion of the loan amount paid (maximum 80%).