Guarantee

A written legally binding promise by one party to be liable for a specific obligation of a second party in the event that the second party does not fulfil its financial obligation at a due date. It is the assumption of responsibility for payment of a debt or performance of some obligation if the liable party fails to perform to expectations. It must be written to be legally enforceable. Frequently used by national governments to reduce the risks of borrowing and bond issues by their sub-sovereign bodies, and by international agencies to increase the creditworthiness of developing country institutions and to support specific projects within them. Common types of guarantees are Political Risk Insurance, Partial Credit Guarantees, Partial Risk Guarantees and Participations.