A bond is a written acknowledgment of debt or an instrument of indebtedness.rnBonds are of different types .The bond that is issued by a surety is called surety bond torndi stingui sh it from the other types of bonds .A surety bond is a document in which arnsurety (an individual or a company) undertakes an obligation towards a creditor torndi scharge the obligation of the principal debtor should the latter fail to do so .In otherrnwords a surety bond is a document in which the contract of suretyship is contained.rnCompan ies, which are engaged in the business of surety bonds, are called surety orrnbonding compan ies .In other countries, in add ition to surety companies, which arernspecialized in rendering bonding services, banks and insurance companies also renderrnsuch services. Here, in Ethiopi a, we never had speciali zed compani es, which have beenrnformed purely for rendering bonding services. Until recentl y,o nly banks and insurancerncompani es have been engaged in bonding businesses. Since the last two years, however,rnthe Nati onal Bank ofEtiIiupia has prohibited insurance companies from issuing certainrntypes of bonds.rnTherefore, the main purpose of thi s study is to investigate the root causes for thernimposi ti on of such prohibition and at the same time find out whether there is a di sparityrnbetween the law and the practice of rendering bonding services, whether there is thernrequired skill , knowledge and experience of the bonding business in Ethiopia and finally,rnfind out whether the prohibiti on imposed by the National Bank of Ethiopia is justified orrnnot.rnFor this purpose, a survey of literatures on contractual security dev ices both fromrnthe common law and the civil law countries has been made .A study tour to some of thernhead offices of banks and insurance companies has been undertaken. Some bond formsrnhave been scrutinized to find out whether such forms are compatible with the law ofrnsuretyship or nol.rnFinally, in this stud y, an attempt has been made to show the di sparity betweel. thernlaw and the practice of bonding business and a conclusion has been reach ed th at,inrngeneral ,there is lack of the required skill, knowledge and experience for running thernbonding business in Ethiopia ,and that the prohib ition imposed on insurance companiesrnnot to issue certain types bonds is unfounded and unjustifiab le.