It was learnt a few weeks ago, that the Central Bank of Nigeria (CBN) activated the Global Standing Instruction (GSI) policy. Now, a look at this policy categorically means, banks can withdraw defaulting loans from any account held by a borrower. Hmmmm!

Lets take some cases of instances that Sif anyone wants to borrow ₦20,000 from GT Bank, He or she will have to sign a mandate where the bank can automatically debit any account they operate with any other bank or financial institution where their Bank Verification Number (BVN) is connected. Thats if you have another bank account from another bank.

With the BVN in use, GT Bank will be able to recover the loan from financial institutions like OPay etc., where the borrower has funds. The GSI mandate also allows the lender (GT Bank in this case) to debit any of the borrower’s joint accounts.

However, In this policy According to the CBN, the GSI should only be used for loan recovery and not for the collection of any penal charge which may come when a borrower defaults on a loan.

It can be Recall that sometime in 2019, the CBN ordered banks to increase their lending portfolio (loan-deposit ratio). Coincidentally several Nigerian banks began offering personal loans at very competitive rates which gives so many people opportunity to access loans. Before this order, lending in Nigeria has been historically low. In reference to a chat which was conducted in the case of one “Chinedu, a small-scale fashion designer says it was better to save up money for years, get from relatives, or join a cooperative when he was looking for business capital.”

“As of 2017, Enhancing Financial Inclusion(EFInA) stated that only 5.3% of Nigerian adults had access to credit. The International Finance Corporation then predicted that several Nigerians could become poor without access to credit, a very important part of financial inclusion”.

But the reasons for this were embedded in the fabric of Nigeria. From research, Thirteen years after the introduction of the National Identity Management Commission (NIMC), the country still lacks a central identity database. The BVN only has records of 45 million people — just 23% of Nigeria’s estimated population leaving about 77% of Nigerians who are yet to carry out their BVN Registration process.

Even with the BVN, it was difficult to determine several people’s credit history. A high level of unemployment and an unstable economy constantly facing inflation and devaluation probably kept banks away from unsecured loans.

Noticing this gap, several digital platforms began offering collateral-free personal loans. They became so rampant that several of them began to engage in noticeably predatory practices.

Exorbitantly high interests, short repayment terms, and embarrassing practices (like calling friends and family) to recover loans.

Banks created their digital platforms, and their lower rates seemingly brought some relief to those in need of personal loans.

Like other fintech sub-sectors, the competition between banks and fintechs looked set to favour consumers.

The question now is, with this introduction during this pandemic., Will this be highly welcomed?

I shall examine more during my next future posts. Chear.

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