This is an undertaking by the guarantor (bank) to make payment to the beneficiary of the guarantee in the event of a default by the applicant of the guarantee. Usually, the only document required for payment is a simple invocation letter. Guarantees are normally used in performance contracts.

Standby Guarantee -This is used for normal trade works like a guarantee. It is popular in the USA and is characterized by ease of operations. Unlike Islamic Import LCs, only a single document is required for the bank to make payment.