by Joel E. Ighalo
INTRODUCTION
The Central Bank of Nigeria recently issued a guideline on Global Standing Instruction (hereinafter referred to as GSI) to enhance loan recovery across the banking sector. This new policy of the apex bank is aimed at recovering loans i.e. the principal sum with the accrued interest, excluding any penal charges, from a defaulting borrower through a direct set-off from deposits held in the Borrower’s qualifying bank accounts with participating financial institutions.
LEGAL BASIS
The GSI derives its legality from Section 2 (d) of the Central Bank of Nigeria Act, 2007 which states that: “the principal object of the bank shall be to promote a sound, financial system in Nigeria.”
APPLICABILITY
GSI applies to individuals alone. This means that any individual who applies to his bank for a loan facility can be bound by the GSI, of his own accord. In the definition of terms, a borrower is defined as “a customer who has executed a GSI Mandate and has utilized a loan/ credit from anticipating financial institution.” The accounts which qualify for GSI are “Individual Savings Accounts, Individual Current Accounts, Individual Domiciliary Accounts, Investment/ Deposit Accounts (Nigerian & Foreign Currency); and Electronic Wallets.” The inference which is to be drawn is that the GSI does not presently apply to companies or corporate entities. It is expected that the Central Bank will issue similar guidelines pertaining to companies.
HOW THE GSI WORKS
The GSI Mandate is contractual in nature. This means that the GSI Mandate should stipulate that the Borrower consents to the vesting of the right in the Creditor Bank to recover its funds, in the event of default. When a Borrower is applying for a loan facility, he is to execute a GSI Mandate in hard copy or digital form. He is also to ensure that all his qualifying accounts are linked to his Bank Verification Number (BVN). It is instructive to note that his qualifying accounts must be held by Participating Financial Institutions (PFIs). The PFI is defined as a Central Bank of Nigeria-licensed financial institution which is connected to the Nigeria Inter-Bank Settlement System (NIBSS) Instant Payment Platform.
The Creditor Bank is to enshrine the GSI Mandate in its loan application process and ensure that the Borrower is educated about the GSI Mandate. The Creditor Bank has an obligation to review and revalidate the GSI Mandate Instrument prior to loan disbursement. When the Borrower defaults in liquidating an outstanding principal sum and interest, the
Creditor Bank may trigger the GSI which will then cause the NIBSS to advise the Participating Financial Institutions where the Borrower has bank accounts to debit them.
PENALTIES
The guidelines on the Global Standing Instruction provides for punitive measures in the event of the abuse of its infrastructure. A notable example is the payment of a flat fine of Five Hundred Thousand Naira (N500, 000) per incident when the Creditor Bank activates a Global Standing Instruction Mandate in error. Another example is the payment of a fine when the
Participating Financial Institution attempts to shield an eligible account of a Borrower from being debited. Several penalties abound in other to protect the sanctity of the GSI.
NOTES
A joint account between two people also qualifies for GSI. This will pose a challenge in the event that a holder of the account is a borrower to the exclusion of the other. The Central Bank of Nigeria may wish to provide clarity in that area as enforceability might lead to legal action by the non-defaulter. The stakeholders of the GSI Mandate are as follows:
a. Borrower.
b. Creditor Bank.
c. Participating Financial Institutions.
d. Nigeria Inter-Bank Settlement System (NIBSS).
e. Central Bank of Nigeria (CBN).
CONCLUSION
The guidelines on the Global Standing Instruction is a laudable policy of the Central Bank of Nigeria. Its implementation will reduce the volume of non-performing loans in the banking industry, and also debt-recovery
This is a publication of Jurislaw and serves as a general information only. It shouLd not be construed as legal advice under any circumstance. For more information kindlyreach us at contact@jurislawng.com
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