Microfinance banks, fintech firms and digital lenders say weaknesses in Nigeria’s loan recovery framework are driving rising defaults, six years after the Central Bank of Nigeria introduced the Global Standing Instruction.
Unlike commercial banks, which can recover unpaid loans by debiting funds from a borrower’s accounts across the banking system, other lenders are excluded from the arrangement — a gap industry players say has enabled habitual defaulters to exploit the system, according to Nairameteics.
Launched in 2020, the GSI was intended to boost credit discipline by allowing creditor banks to recover outstanding loans without seeking fresh consent from defaulting customers.
Despite initial plans for a phased rollout across the broader financial sector, the GSI has so far been largely limited to commercial banks.
Commenting, the founder of Lendsqr,
Adedeji Olowe, noted that leaving fintechs and microfinance banks out of the GSI has given borrowers unwilling to repay their loans a clear loophole to exploit.
“Because GSI is currently limited to commercial banks, finance houses, microfinance banks and fintechs are either not connected or not using it,” he said.
He explained that some borrowers are exploiting this gap by taking loans from commercial banks and shifting them to microfinance banks and fintechs, where the GSI cannot enforce repayment.
Olowe added that this practice is becoming more widespread, as borrowers take advantage of the fragmented nature of Nigeria’s financial system, making it harder for lenders outside the commercial banking sector to recover their loans.
In an interview with Nairametrics, FairMoney Managing Director Henry Obiekea said that excluding other financial institutions from the GSI is creating significant challenges for microfinance banks and digital lenders in recovering loans.
“The deployment of the GSI was going to be done in phases. Unfortunately, the phasing has taken quite a long time,” he lamented.
Obiekea stated that granting GSI access to microfinance banks would greatly enhance loan repayment rates.
“If customers know that this is what can happen, it will incentivize them to behave the right way and to pay their loan,” he noted.
Meanwhile, President of the Money Lenders Association, Gbemi Adelekan, said that most digital lenders already depend heavily on existing systems, like Bank Verification Numbers and credit bureaus, to evaluate borrowers before issuing loans.
“Most of us use BVN for bio data and credit registries to check credit history. Yet, we still have a lot of people that do not repay. In many cases, they have the ability but not the willingness to pay,” he said.
Adelekan noted that the lack of access to borrowers’ funds across all banks makes loan recovery challenging, particularly with the growth of neobanks and multiple digital wallets.
Digital lenders warn that the exclusion from GSI has become a systemic risk, especially since they serve low-income customers who often have limited awareness of their credit responsibilities.
