Bank Guarantee (Kenya)
Bank Guarantee
BANK GUARANTEE Guarantee Number: [Guarantee Number] Date: [Issuance Date] Type: [Guarantee Type]
Parties
GUARANTOR (ISSUING BANK): [Bank Name] CBK Licence No.: [Bank Licence Number] [Bank Branch] PRINCIPAL: [Principal Name] BRS No.: [Principal BRS Number] [Principal Address] BENEFICIARY: [Beneficiary Name] [Beneficiary Address]
Recitals
WHEREAS: (A) [Principal Name] (the "Principal") is required to provide security in favour of [Beneficiary Name] (the "Beneficiary") in connection with: [Underlying Obligation] (the "Underlying Obligation"), Contract Reference: [Contract Reference Number]. (B) At the request of the Principal, [Bank Name] (the "Bank"), a commercial bank licensed by the Central Bank of Kenya (CBK) under the Banking Act (Cap. 488), has agreed to issue this Bank Guarantee in favour of the Beneficiary.
Guarantee Undertaking
NOW THEREFORE, the Bank hereby irrevocably and unconditionally undertakes to pay to the Beneficiary, on first written demand, any sum or sums not exceeding in aggregate: [Guarantee Amount] ([Guarantee Amount Words]) (the "Guaranteed Amount"), upon receipt by the Bank of a written demand from the Beneficiary stating that the Principal has failed to fulfil the Underlying Obligation, without the Beneficiary being required to prove or show grounds or reasons for the demand or the sum specified therein. This guarantee constitutes a primary and autonomous obligation of the Bank, independent of and separate from any obligations of the Principal to the Beneficiary. The Bank's obligation to pay is not affected by any dispute, defence, set-off, counterclaim, or other right that the Principal may have against the Beneficiary.
Demand Conditions and Payment
DEMAND CONDITIONS: A demand under this Guarantee must be in writing, signed by an authorised representative of the Beneficiary, and must: (a) Identify this Guarantee by its guarantee number [Guarantee Number]; (b) State the amount demanded (not exceeding the Guaranteed Amount); (c) State that the Principal has failed to perform the Underlying Obligation and describe the nature of the failure. Demands must be presented to the Bank at the following address: [Bank Branch] during normal banking hours on a business day before or on the Expiry Date. PAYMENT: The Bank shall pay the demanded amount within [Demand Payment Period] business days of receiving a compliant demand, to such account as the Beneficiary specifies in the demand notice, in Kenya Shillings. GOVERNING RULES: This Guarantee is [URDG Incorporated] subject to the Uniform Rules for Demand Guarantees (URDG 758) published by the International Chamber of Commerce (ICC). To the extent of any inconsistency between the URDG 758 and Kenya law (including the Law of Contract Act Cap. 23 and the Banking Act Cap. 488), Kenya law shall prevail.
Expiry
EXPIRY: This Guarantee shall expire at the close of business (17:00 hours Nairobi time) on [Expiry Date] (the "Expiry Date"). Any demand under this Guarantee must be received by the Bank at the address specified above on or before the Expiry Date. Demands received after the Expiry Date shall not be honoured. EXTEND OR PAY: If the Bank decides not to extend this Guarantee, the Bank shall give the Beneficiary at least [Extension Notice] days' written notice before the Expiry Date, informing the Beneficiary of the Bank's intention not to extend. The Beneficiary may, within that notice period, present a compliant demand for the outstanding Guaranteed Amount. Upon expiry or termination of this Guarantee, the Beneficiary shall return the original Guarantee document to the Bank. Return of the original Guarantee prior to the Expiry Date shall constitute release of the Bank's obligations hereunder.
Governing Law and Jurisdiction
GOVERNING LAW: This Guarantee shall be governed by and construed in accordance with the laws of Kenya, including the Banking Act (Cap. 488), the Law of Contract Act (Cap. 23), and the Stamp Duty Act (Cap. 480). JURISDICTION: Any dispute arising out of or in connection with this Guarantee, including any question regarding its existence, validity, or termination, shall be subject to the exclusive jurisdiction of the High Court of Kenya (Commercial Division) sitting in Nairobi, without prejudice to the parties' rights to seek urgent injunctive relief in any competent court. IN WITNESS WHEREOF, this Guarantee has been duly executed by the authorised signatories of the Bank on [Issuance Date].
Bank Authorisation
Executed by [Bank Name] by its authorised signatories:
Authorised Signatory 1
________________
Signature
Authorised Signatory 2
________________
Signature
What Is a Bank Guarantee (Kenya)?
A Bank Guarantee in Kenya records a third party's promise to answer for the debt or default of the primary obligor.
In Kenya, Bank Guarantees are classified under the Law of Contract Act (Cap. 23) as contracts of suretyship, but their commercial operation is governed primarily by the terms of the guarantee instrument itself and by the Uniform Rules for Demand Guarantees (URDG 758) published by the International Chamber of Commerce (ICC), which many Kenyan banks adopt by express incorporation. The Central Bank of Kenya (CBK), established under the Central Bank of Kenya Act (Cap. 491), supervises all licensed commercial banks and mortgage finance companies that issue guarantees, and imposes limits on contingent liabilities through the CBK Prudential Guideline on Capital Adequacy (CBK/PG/03).
A Kenya Bank Guarantee differs fundamentally from a personal guarantee or surety bond. A personal guarantee creates secondary liability — the guarantor is only obligated after the principal defaults and the creditor exhausts remedies against the principal. A Bank Guarantee is a primary undertaking: the bank pays on first demand, irrespective of any dispute between the principal and beneficiary, and then exercises its right of indemnity against the principal under the counter-indemnity agreement executed between the bank and its customer.
Kenyan courts — including the High Court of Kenya (Commercial Division) and the Court of Appeal — have consistently held that Bank Guarantees are autonomous instruments and that banks are not entitled to refuse payment based on disputes between the principal and beneficiary, except in cases of clear and obvious fraud. This principle was affirmed in Equity Bank Limited v Flying Cargo International Limited [2015] eKLR, where the Commercial Division upheld the autonomy principle.
The Kenya Revenue Authority (KRA) accepts Bank Guarantees as security for deferred tax payments, customs duty, and bond requirements under the East African Community Customs Management Act (EACCMA) 2004, administered jointly by the East African Community member states through the respective revenue authorities. The Public Procurement and Asset Disposal Act No. 33 of 2015 and its Regulations require Bank Guarantees as performance security for public contracts exceeding prescribed thresholds set by the Public Procurement Regulatory Authority (PPRA).
Stamp Duty Act (Cap. 480) imposes stamp duty on certain guarantee instruments in Kenya. Guarantees securing land or property transactions may attract stamp duty assessed by the Kenya Revenue Authority under the Stamp Duty Act. Commercial bank guarantees securing trade finance obligations are typically exempt from stamp duty where they fall within specific exemption categories under the Finance Act.
When Do You Need a Bank Guarantee (Kenya)?
A Bank Guarantee in Kenya is required in a wide range of commercial, regulatory, and construction contexts.
A Bank Guarantee is required when a Kenyan company bids for a public procurement contract under the Public Procurement and Asset Disposal Act No. 33 of 2015. The PPRA Regulations require a Bid Bond (which may take the form of a Bank Guarantee) equal to between 1% and 2% of the contract value for large contracts. Successful bidders are then required to submit a Performance Bond — typically a Bank Guarantee equal to 10% of the contract value — before the contract is signed.
A Bank Guarantee is needed when a company imports goods into Kenya and applies for a customs bond under the East African Community Customs Management Act (EACCMA) 2004. The Kenya Revenue Authority (KRA) Customs and Border Control Department requires a Bank Guarantee from a Kenya-licensed bank as security for deferred customs duty payments on goods entered under a warehousing, transit, or temporary importation regime.
A Bank Guarantee is required for landlords accepting commercial tenants on a lease agreement under the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act (Cap. 301). Many commercial landlords in Nairobi, Mombasa, and Kisumu require a Bank Guarantee equivalent to 3 to 6 months' rent as an alternative to a cash deposit, particularly for institutional tenants.
A Bank Guarantee is needed when a contractor undertakes a construction project for a government entity or a private developer and the contract requires performance security. The National Construction Authority (NCA) contractor registration conditions under the National Construction Authority Act No. 41 of 2011 reference bank guarantees as acceptable performance security instruments.
A Bank Guarantee is required when a licensed importer of petroleum products, pharmaceutical goods, or other regulated commodities needs to furnish security to the Energy and Petroleum Regulatory Authority (EPRA), the Pharmacy and Poisons Board (PPB), or other sector regulators as a condition of the relevant licence or permit.
A Bank Guarantee is needed when a taxpayer applies to the Kenya Revenue Authority Tax Appeals Tribunal under the Tax Procedures Act No. 29 of 2015 to defer payment of assessed taxes pending determination of an objection or appeal. The KRA may accept a Bank Guarantee as security for the disputed tax amount.
Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements.
What to Include in Your Bank Guarantee (Kenya)
A Kenya Bank Guarantee must include the following essential elements to be valid, enforceable, and accepted by beneficiaries including government entities and commercial counterparties.
Parties Identification: The full legal name of the issuing bank (the guarantor), its CBK banking licence number, and its registered address; the full name of the principal (the bank's customer on whose behalf the guarantee is issued), including the company BRS registration number if a corporate entity; and the full name of the beneficiary — often a government ministry, county government, or commercial counterparty.
Guarantee Amount and Currency: The maximum guaranteed amount expressed in Kenya Shillings (KES) — or in the agreed currency for international trade transactions — stated as both numerals and words. The Bank Guarantee must specify whether the guaranteed amount is fixed or reduces as the underlying obligation is performed.
Underlying Obligation: A precise description of the principal obligation secured by the guarantee — for example, performance of a public procurement contract under reference number [Contract No.] awarded under the Public Procurement and Asset Disposal Act No. 33 of 2015, or payment of customs duty under an import entry reference. Vague descriptions of the underlying obligation can lead to disputes about the scope of the bank's liability.
Demand Conditions: The specific conditions under which the beneficiary may make a demand — typically a written demand stating that the principal has failed to perform the specified obligation. For URDG 758-compliant guarantees, the demand must comply with the formal requirements of URDG 758 Articles 14 to 17, including a statement of the respect in which the principal is in breach.
Expiry Date and Expiry Event: The guarantee must specify a definite expiry date in DD/MM/YYYY format, after which the bank's liability terminates. Many guarantees also include an expiry event (for example, issuance of a completion certificate by the engineer or the project employer) as an alternative expiry trigger.
Demand Mechanics: The procedure for making a demand under the guarantee — the address to which demands must be presented (typically a branch of the issuing bank in Kenya), the form of demand (written notice), and the bank's obligation to pay within a specified period (typically 5 to 10 business days) of a compliant demand. Section 12 of the Law of Contract Act (Cap. 23) requires clarity in contractual obligations.
Extension and Reduction: Where applicable, the mechanism for the principal to request extension of the guarantee expiry date, the bank's right to decline extension, and the consequence of non-extension (the bank issues an expiry notice giving the beneficiary time to make a final demand). Reduction clauses are common in construction performance guarantees where the guaranteed amount reduces in proportion to certified contract progress.
Governing Law and Jurisdiction: Kenya law governs the guarantee, with disputes subject to the jurisdiction of the High Court of Kenya (Commercial Division) in Nairobi, or the Nairobi Centre for International Arbitration (NCIA) where arbitration is specified.
The forms-legal.com Bank Guarantee template includes 9 structured clauses covering all elements required by CBK Prudential Guidelines, the URDG 758, and the Public Procurement and Asset Disposal Act No. 33 of 2015. Companies requiring a Bid Bond should also review the ke-bid-bond template for procurement-specific requirements.
Additional compliance elements for a Bank Guarantee (Kenya) used in Kenya include: Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Bank Guarantee (Kenya) (Kenya) [Legal document template]. Forms Legal. https://forms-legal.com/kenya/financial/agreements/bank-guarantee-kenya
"Bank Guarantee (Kenya) (Kenya)." Forms Legal, 2026, https://forms-legal.com/kenya/financial/agreements/bank-guarantee-kenya.
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Frequently Asked Questions
A Bank Guarantee is legally enforceable in Kenya as a primary and autonomous undertaking of the issuing bank, governed by the Banking Act (Cap. 488), the Law of Contract Act (Cap. 23), and — where expressly incorporated — the Uniform Rules for Demand Guarantees (URDG 758) published by the International Chamber of Commerce (ICC). The High Court of Kenya (Commercial Division) and the Court of Appeal have consistently upheld the autonomy principle: a bank must pay on a compliant demand without enquiring into the merits of any dispute between the principal and beneficiary. The only recognised exception is clear and obvious fraud, as affirmed in Equity Bank Limited v Flying Cargo International Limited [2015] eKLR. A Bank Guarantee that is stamped under the Stamp Duty Act (Cap. 480) where required, signed by authorised bank officers, and clearly identifies the parties, amount, and expiry conditions will be fully enforceable. Beneficiaries should confirm that the issuing bank holds a valid CBK banking licence before accepting a guarantee.
A Bank Guarantee and a Bid Bond both involve a bank's unconditional promise to pay, but they serve different purposes under Kenya's Public Procurement and Asset Disposal Act No. 33 of 2015. A Bid Bond (also called a tender guarantee) is issued at the tendering stage to protect the procuring entity against a bidder who wins a tender but refuses to sign the contract or submit the required Performance Bond. The Bid Bond amount is typically 1% to 2% of the contract value and expires when the Performance Bond is submitted. A Bank Guarantee issued as a Performance Bond provides ongoing security for the contractor's performance throughout the contract period — typically equal to 10% of the contract value — and expires on issuance of the completion certificate or final account settlement. The Public Procurement Regulatory Authority (PPRA) prescribes the form and minimum amount of Bid Bonds and Performance Bonds for public contracts. Both instruments are autonomous bank undertakings, but they differ in trigger conditions, amount, and duration.
Bank Guarantees in Kenya can be issued by any commercial bank licensed by the Central Bank of Kenya (CBK) under the Banking Act (Cap. 488). As of 2026, there are 38 CBK-licensed commercial banks in Kenya, including Kenya Commercial Bank (KCB), Equity Bank Kenya Limited, Co-operative Bank of Kenya, Standard Chartered Bank Kenya, Absa Bank Kenya, I&M Bank, NCBA Bank, DTB Group, and others. Each bank applies its own credit assessment procedures and requires the principal to provide counter-security — typically in the form of a cash margin deposit, lien over fixed deposits, or security over real or personal property — before issuing a guarantee. The CBK Prudential Guideline on Capital Adequacy (CBK/PG/03) limits the aggregate contingent liabilities any bank may carry relative to its core capital. Companies should approach their relationship bank for a Bank Guarantee, as the bank will rely on the existing credit assessment. The CBK maintains a register of licensed banking institutions on its website at www.centralbank.go.ke.
A Bank Guarantee in Kenya is valid until its specified expiry date — there is no statutory minimum or maximum duration prescribed by the Banking Act (Cap. 488) or the Law of Contract Act (Cap. 23). In practice, guarantee durations are tied to the underlying obligation: a Bid Bond for a public tender expires within 90 to 180 days; a construction Performance Bond expires on project completion — typically 12 to 36 months; a customs bond for temporary importation under the East African Community Customs Management Act (EACCMA) 2004 may be issued for 12 months. Guarantees issued under the Uniform Rules for Demand Guarantees (URDG 758) must specify a definite expiry date or event. Most Kenyan bank guarantees include an 'extend or pay' provision: if the bank decides not to extend the guarantee before its expiry, it must notify the beneficiary at least 30 days before expiry, giving the beneficiary the option to make a final demand within that period. Beneficiaries should maintain a tracking system for guarantee expiry dates and initiate renewal discussions with the principal at least 60 days before expiry.
When a Bank Guarantee expires in Kenya without a valid demand having been presented by the beneficiary before the expiry date, the bank's liability under the guarantee terminates automatically. The bank is released from all obligations under the guarantee, and the counter-security provided by the principal — cash deposit, fixed deposit lien, or property charge — is released to the principal. The beneficiary cannot make a valid demand after the expiry date, even if the principal has breached the underlying contract, because the guarantee is an autonomous instrument with its own expiry conditions separate from the underlying contract. Under the Uniform Rules for Demand Guarantees (URDG 758) Article 25, an expired guarantee returned to the issuing bank confirms its termination. Beneficiaries who allow a guarantee to expire without calling on it lose the security, but retain their contractual rights against the principal under the underlying agreement, which can be enforced before the High Court of Kenya (Commercial Division) or the Nairobi Centre for International Arbitration (NCIA) as applicable.
Stamp duty on Bank Guarantees in Kenya is assessed under the Stamp Duty Act (Cap. 480) administered by the Kenya Revenue Authority (KRA). The applicable stamp duty depends on the nature of the underlying obligation. Bank Guarantees securing real estate or property-related transactions — such as performance of a land purchase agreement or a commercial lease — may attract stamp duty calculated on the guaranteed amount. Bank Guarantees issued for trade finance, customs bond, public procurement performance security, or general commercial obligations are typically subject to stamp duty at a nominal fixed amount per instrument, or may be exempt under specific provisions of the Finance Act. The KRA Domestic Taxes Department in Nairobi and its regional offices process stamp duty assessments. Parties should obtain a specific stamp duty assessment from the KRA before executing a Bank Guarantee for high-value transactions to confirm the applicable duty and avoid penalties for under-stamping. Unstamped instruments that attract stamp duty are inadmissible as evidence in Kenyan courts under Section 19 of the Stamp Duty Act (Cap. 480).
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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