6 common misconceptions about using GSI for loan recovery

Global Standing Instruction (GSI) is one of the best things that Nigerian commercial banks and the Central Bank of Nigeria have ever developed to deal with credit issues and loan recovery. 

Serial defaulters decimated the Nigerian loan industry by taking money from different banks and never paying back. But unfortunately, since GSI went live, there’s been a lot of confusion and misunderstanding surrounding how it works.

So in this article, we will talk about what GSI does and clear the misconceptions about using it for loan recovery.

How does GSI work?

The Global Standing Instruction (GSI) serves as a loan recovery mechanism for Nigerian banks. The Nigerian Interbank Settlement System (NIBSS) designed and operates it, with the Central Bank of Nigeria (CBN) providing oversight.

The CBN published the original Operational Guidelines on Global Standing Instruction – Individuals on July 13, 2020. These guidelines became effective from August 1, 2020. On January 19, 2022, the CBN issued a circular titled “Re: Global Standing Instruction (GSI) – Individuals” to amend the original GSI guidelines. 

Here’s how it functions:

The borrower must provide their explicit and verifiable agreement (in writing or electronically) before approving the loan, allowing the bank to use the GSI system if they fail to repay the loan. That’s how to trigger it.

Then, the GSI system allows the lending bank to recover the outstanding loan from the borrower’s accounts in any other Nigerian bank.

Also note that GSI can only recovers the principal loan amount, not interest or additional fees. Learn more about the detailed process of how GSI operates.

What are these common GSI misconceptions? 

As the team at Lendsqr working with almost 4,000 lenders, we field GSI questions daily! Let’s clear up the most common misunderstandings:

Misconception 1: GSI can be triggered on customer’s accounts when they don’t pay their loan. 

Fact: GSI can’t be used right away if a payment is late. The loan needs to be officially classified as a “bad debt” first. This typically happens after a set period of non-payment, which is usually 90 days for banks and zero days for microfinance banks if the due date has passed.

Misconception 2: GSI is available for everybody. 

Fact: GSI is only available to finance entities, lenders, and banks that are reporting and licensed to the Central Bank of Nigeria.

Misconception 3: GSI can be available via APIs. 

Fact: While GSI-related APIs reportedly exist, they are restricted to banks. Public access is not currently available.

Misconception 4: I can use GSI to collect loans owed to me. 

Fact: GSI limits collecting loans to when the customer has signed a clear documented permission before you grant the loan. If there is no evidence of that consent, you cannot use GSI.

Earlier in the year we held a webinar to discuss the tricks scammers use and gave tips on how to fight back.

Watch how to become a fraud-fighting pro, and protect your hard-earned moneyhttps://t.co/DIz5gPUXZF#lendsqr #badborrowers #security pic.twitter.com/vg9KG6ivAv

— Lendsqr (@lendsqr) June 18, 2024

Misconception 5: Anybody can use BVN with GSI to debit

Fact: Direct debit  and GSI are two different things. Both require consent, but direct debit ties only to one bank account. On the other hand, GSI ties to all the bank accounts the borrower has in different banks.

Misconception 6: GSI can be used to recover any amount that somebody is owing you.

Fact: Not true. GSI limits loan recovery to the outstanding principal no interest, fees, or penalties. So, if you are a lender with a high penalty rate, you recover those additional fees with GSI.

The way forward

At Lendsqr, we recognize that these limitations on using GSI for loan recovery can be inconvenient for lenders. We are currently ideating with a number of commercial banks, exploring potential solutions that could make lenders have access to GSI  in a way that’s both long-lasting and compliant with regulations, while providing stronger protection for all parties involved.

Meanwhile, the Lendsqr loan management software has smart ways for lenders to recover loans. If you have questions or would like to get started, simply reach out to [email protected].