On 13th July 2020, the Central bank of Nigeria (the “CBN”) published the Operational Guidelines on Global Standing Instruction - Individuals (the “GSI Guidelines”) which became effective from 1st August 2020. The GSI Guidelines are aimed at reducing non-performing loans (“NPLs”) in the banking sector, facilitating an improved loan repayment culture and monitoring loan defaulters across Nigeria’s banking industry.

Overview of the GSI Guidelines 

The Global Standing Instruction (“GSI”) is a mandate authorizing the recovery of due loan obligations from any and all deposit accounts maintained by a defaulting borrower with other banks other than the creditor bank. It is an arrangement that creates a contractual mandate from an individual borrower, in favour of a creditor bank to apply monies standing to the credit of the borrower in a third-party financial institution or electronic wallet to offset the debt obligations of the borrower.

The GSI Guidelines provides for the roles and the responsibilities of the borrower, the creditor bank, the Participating Financial Institution ("PFIs”), the Nigerian Inter-Bank Settlement System (the “NIBSS”) and the CBN in making the process of debt recovery through the GSI, seamless. 

According to the GSI Guidelines, before a borrower can access a loan from any financial institution in Nigeria, he/she is required to ensure that all bank accounts of the individual (i.e. savings, current, domiciliary or joint accounts) are linked with the borrower’s Bank Verification Number. 

The GSI Guidelines also require the borrower to execute a GSI mandate with clear terms and conditions in either hard or digital copy in favour of the creditor bank. 

Where a customer defaults on repayment of the loan or accrued interest and has no funds in his/her account(s) domiciled with the creditor bank, the GSI Guidelines gives the NIBSS the power to debit the outstanding amount from the borrower’s bank accounts in other banks domiciled in Nigeria.

The GSI Guidelines also penalizes creditor banks and PFIs for erroneously implementing the GSI.

Amendment to the GSI Guidelines 

On 19th January 2022, the CBN by a Circular titled: Re: Global Standing Instruction (GSI) – Individuals (the “GSI Circular”) amended the GSl Guidelines to allow continuous and unrestricted loan recovery by Deposit Money Banks and financial institutions in Nigeria.

The initiative was conceived primarily to address the recurring instances of wilful loan defaults in the industry, to identify and create a watchlist of recalcitrant loan defaulters, and to enhance loan recovery from all eligible and funded accounts / wallets in the industry.

The purpose of the GSI Circular is to amend the frequency of the recovery attempts via the GSI platform from a specific number to become continuous and unrestricted throughout the life of the loan and/or until the loan is fully repaid.

Conclusion

This initiative is a step in the right direction as it holds the possibility of diminishing the decline in the total Non-Performing Loans in the financial system in Nigeria and fundamentally addressing the recurring instances of wilful loan default in the financial industry. This in turn may provide more stability to the banking system in Nigeria.

A copy of the GSI Circular can be downloaded here.