Godwin Emefiele, CBN Governor
By Foluso Adelaja (with additional information online)
Today is the first day of the month of August. Today is a special day to several people for respective reasons. If, perhaps, you are one of those without any reason to consider today as noteworthy, at least, that you are alive makes the day important enough to be considered special.
However, in Nigeria, today, the first of the eighth month(August) of the year 2020 is a special day, especially to the nation’s finance and banking sector. From today, a new loaning regime commences in Nigeria.
The Central Bank of Nigeria (CBN) moved a step ahead of bank loan defaulters with a new guideline that allows seizure of their funds in other accounts.
The CBN in collaboration with stakeholders had last year developed the necessary process to adopt in facilitating a seamless recovery of loans from defaulting loanees.
That process that could be adopted by the loaner to recoup its fund which begins to come into effect from today is called GSI.
WHAT IS GSI?
The GSI means Global Standing Instruction. It is the mandate authorizing recovery of past due obligations from any and all deposit accounts maintained by a defaulter. The GSI is limited to debt recovery only and is limited to only individual accounts.
Although it can be used for recovery of repayment amount, the GSI cannot be used to recover any additional fees, charges or penal rate for default.
According to the apex bank’s operational guidelines for Global Standing Instruction (GSI), this allows financial institutions to access funds of defaulting debtors that are deposited in other banks with effect from August 1, 2020.
In a circular issued by the CBN Director, Financial Policy and Regulation Department, Kevin Amugo the GSI is targeted at facilitating an improved credit repayment system, reducing non-performing loans.
According to the Asset Management Corporation of Nigeria (AMCON), 105 debtors were responsible for about 4.5 trillion Naira debt affecting the financial health of the Nigeria banking industry.
The CBN in collaboration with stakeholders had last year developed the necessary protocols to facilitate a seamless implementation of the GSI process, including eligible loans granted from August 28, 2019.
Accordingly, it had issued the guideline to regulate the operations of the GSI which will be implemented with effect from August 1, 2020, as a way to enhance loan recovery across the banking sector.
The guideline states that the GSI shall serve as a last resort by a Creditor bank, without recourse to the Borrower, to recover past due obligations (Principal and Accrued Interest only, excluding any Penal Charges) from a defaulting Borrower through a direct set-off from deposits/investments held in the Borrower’s qualifying bank accounts with participating financial institutions.
To set up the mandate, customers will fill in their BVN, Credit Risk Management System (CRMS) number, the full repayment amount, the loan duration and the repayment account. The GSI is being maintained by NIBSS which is the custodian of BVN and holds records of all bank accounts in the country.
Once a debtor defaults on a loan, the GSI is triggered with the creditor bank activating the mandate on GSI Module specifying the recovery amount.
Once triggered, the available accounts for recovery are identified, available balances for the accounts are retrieved and funds from the accounts according to Recover Logic are recovered.
Participating financial institutions by the GSI mandate must honor all transactions from NIBSS with a valid GSI Mandate code. The GSI Transactions can be triggered upon default on repayment, seven days after scheduled repayment date or before application of penal rates.
With the adoption of this protocol, many affluent Nigerians with the habit of taking loans from financial institutions with the mindset of not paying back will henceforth think twice.
The Central Bank of Nigeria has taken the right step to put paid to obtaining loans with impunity as many will henceforth think twice as there is no hiding place any longer.
