Loan Guarantee Form Template for Pakistan

A legally binding document under Pakistani law where a guarantor undertakes to secure the obligations of a borrower to a lender. The document is structured in accordance with the Contract Act 1872 and Financial Institutions (Recovery of Finances) Ordinance 2001, incorporating both conventional and Islamic banking considerations where applicable. It establishes the guarantor's obligations, limits of liability, enforcement mechanisms, and includes provisions for representations, warranties, and payment terms. The document serves as a critical risk mitigation tool for financial institutions while providing clear terms and conditions for all parties involved.

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What is a Loan Guarantee Form?

The Loan Guarantee Form is a crucial legal instrument in Pakistan's financial sector, used when a third party (guarantor) agrees to secure the loan obligations of a borrower. This document is essential in situations where additional security is required by financial institutions before extending credit facilities. The guarantee form must comply with Pakistani legislation, particularly the Contract Act 1872 and Financial Institutions (Recovery of Finances) Ordinance 2001, and can be adapted for both conventional and Islamic banking structures. It typically includes detailed provisions about the guarantee's scope, enforcement mechanisms, and the rights and obligations of all parties. The document is particularly relevant in corporate financing, SME lending, and personal banking where third-party guarantees are required as additional security for loans.

What sections should be included in a Loan Guarantee Form?

1. Parties: Identifies the Guarantor, the Lender (Creditor), and the Borrower (Principal Debtor)

2. Background: Describes the underlying loan agreement and the context for the guarantee

3. Definitions: Defines key terms used throughout the guarantee document

4. Guarantee and Indemnity: Core section detailing the guarantee obligations and indemnification provisions

5. Extent and Limits of Guarantee: Specifies the amount guaranteed and any limitations on the guarantee

6. Nature of Guarantee: Establishes whether it's a continuing guarantee and its relationship to other securities

7. Guarantor's Representations and Warranties: Statements about the guarantor's capacity and authority to provide the guarantee

8. Payment Terms: Details of how and when payments under the guarantee should be made

9. Enforcement: Conditions under which the guarantee can be enforced and the process

10. Governing Law and Jurisdiction: Specifies Pakistani law as governing law and identifies jurisdiction for disputes

What sections are optional to include in a Loan Guarantee Form?

1. Islamic Banking Compliance: Required when the guarantee needs to comply with Shariah principles

2. Multiple Guarantors: Include when there is more than one guarantor, defining joint and several liability

3. Security Provisions: Include when the guarantee is secured by specific assets

4. Assignment and Transfer: Include when the parties want to allow for transfer of guarantee rights

5. Currency Provisions: Required when the underlying loan is in foreign currency

6. Corporate Authorization: Include when the guarantor is a corporate entity

What schedules should be included in a Loan Guarantee Form?

1. Schedule 1 - Underlying Loan Agreement Details: Contains key details of the loan being guaranteed, including amount, interest rate, and tenure

2. Schedule 2 - Payment Schedule: Details of the underlying loan repayment schedule

3. Schedule 3 - Security Details: If applicable, details of any security or collateral provided

4. Schedule 4 - Corporate Authorizations: If applicable, corporate resolutions and authorizations for providing the guarantee

5. Appendix A - Notice Details: Contact information and addresses for serving notices to all parties

6. Appendix B - Form of Demand: Standard format for making a demand under the guarantee

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

Pakistan

Publisher

Genie AI

Document Type

Loan Agreement

Sector

Banking

Cost

Free to use

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