Zambian insurers use bonds as guarantees on tenders
Bonds called tender bonds are often used by insurance companies as guarantees as part of a tender/bid in Zambia.When an investor purchases a bond, he loans money to the issuer, and the issuer therefore contracts a debt. A bond is an undertaking which binds two parties, for example a contractor and an employer.
The Times of Zambia notes a company employing a contractor obtains through these bonds the guaranty that any losses caused by the failure of the bidder will be covered.
Once the tender is accepted, it is usually necessary to replace the tender bond by a performance bond.
Bonds are a usually preferred by bidders as standard deposits tends to tie up more resources, highlights UKZambians.
They contribute to the development of the private sector, especially when it comes to small and medium-size enterprises, as they guaranty that the company issuing the tender will be covered in case of losses.
Bonds also contribute to widen access to credit for companies, as they can also be used as guarantees within a collateral loan.