Nigeria’s fast-growing digital lending ecosystem is grappling with mounting loan defaults, as microfinance banks (MFBs), fintechs and digital lenders raise concerns over their continued exclusion from the Central Bank of Nigeria’s (CBN) Global Standing Instruction (GSI) framework.
Six years after the GSI was introduced to strengthen loan recovery and credit discipline, its benefits remain largely confined to commercial banks. Industry operators say this gap has created an uneven playing field and opened the door for serial defaulters to exploit weaknesses in the system.
A Framework with Limited Reach
Launched in 2020, the GSI was designed as a recovery mechanism that allows creditor banks to debit funds from a borrower’s other accounts across participating financial institutions—without requiring fresh consent—once a loan defaults. The policy was introduced as part of efforts to reduce non-performing loans (NPLs) and improve repayment culture within Nigeria’s banking sector.
Under the framework, borrowers sign a consent authorizing their bank to recover overdue principal and accrued interest from deposits or investments held in other qualifying accounts. The CBN described the GSI as a “last resort” recovery tool, aimed at curbing deliberate loan defaults and strengthening overall financial stability.
However, while the initiative was initially expected to be rolled out in phases across the broader financial ecosystem, implementation has remained largely restricted to commercial banks.
How Borrowers Exploit the Gaps
Fintech operators argue that the exclusion of non-bank lenders has effectively created a loophole for borrowers determined to avoid repayment.
According to Adedeji Olowe, founder of Lendsqr, borrowers now take advantage of the fragmented structure of Nigeria’s financial system by moving funds beyond the reach of the GSI.
Because finance houses, microfinance banks and many fintech lenders are either not connected to the platform or unable to deploy it, some customers allegedly obtain loans from commercial banks and then shift funds to accounts held with MFBs or fintech platforms, where recovery mechanisms are weaker.
Olowe notes that this behavior is becoming increasingly common, undermining recovery efforts and exposing non-bank lenders to heightened credit risk.
Henry Obiekea, Managing Director of FairMoney, echoed similar concerns, describing the delayed rollout to other financial institutions as a major setback. He explained that extending GSI access to MFBs and digital lenders would significantly improve repayment behavior, as borrowers would be more aware of the consequences of default.
Defaults Persist Despite Credit Checks
The rising defaults come despite the widespread use of Bank Verification Numbers (BVN) and credit bureau checks among digital lenders.
Gbemi Adelekan, President of the Money Lenders Association, said most lenders already rely heavily on these tools to assess borrowers’ identity and credit history before disbursement.
Yet, defaults remain high.
According to Adelekan, the challenge is not always the borrower’s capacity to repay, but often their willingness. He added that the growing number of neobanks and digital wallets has made it easier for defaulters to move funds quickly and become difficult to trace.
In some cases, borrowers reportedly abandon accounts, destroy linked debit cards and migrate to new banking platforms, further complicating recovery efforts.
Calls for Regulatory Action
Digital lenders now warn that the exclusion from GSI is evolving into a systemic risk—particularly as many of them serve customers at the lower end of the income pyramid, where financial literacy levels may be limited.
Industry stakeholders are urging regulators, including the Federal Competition and Consumer Protection Commission (FCCPC), to engage the CBN on expanding access to the GSI framework.
One structural concern, according to operators, is that many digital lenders fall outside direct CBN regulation, which may contribute to their limited inclusion in policy frameworks such as the GSI.
CBN Promises Phased Expansion
The apex bank has acknowledged the need for broader integration. During the 2024 Bankers’ Night in Lagos, CBN Governor Olayemi Cardoso announced plans to integrate Microfinance Banks and Primary Mortgage Banks into the GSI platform to address rising NPLs.
In its first Fintech Report released recently, the CBN reaffirmed this commitment, stating that expansion of the GSI framework to fintech lenders and Microfinance Institutions (MFIs) is underway, with phased completion expected by 2026.
For now, however, most MFBs and fintech lenders remain outside the system.
A Case Study: NIRSAL’s Recovery Drive
One notable exception is NIRSAL Microfinance Bank, a government-backed institution, which has deployed the GSI to recover COVID-19 intervention loans disbursed during the pandemic.
The recovery effort surprised many beneficiaries, some of whom believed the loans were grants and complained about deductions from their accounts. NIRSAL MFB, however, maintained that the recoveries were legitimate and in line with loan agreements signed by beneficiaries.
The Bigger Picture
As Nigeria’s digital credit market expands, lenders argue that effective recovery mechanisms must evolve alongside it. Without broader GSI integration, they warn, the system risks encouraging opportunistic defaults, weakening credit discipline and constraining access to responsible lending.
While the CBN has signaled progress, the pace of implementation remains a source of frustration for operators who say rising NPLs are already straining their balance sheets.
For many in the non-bank lending space, the expansion of the GSI is no longer a policy ambition—it is an urgent necessity.