Nigeria’s digital lenders face rising loan defaults amid exclusion from CBN’s GSI framework, raising systemic credit risks

Nigeria’s digital lending ecosystem is facing mounting challenges as microfinance banks, fintechs, and other non-bank lenders struggle with rising loan defaults, largely due to their exclusion from the Central Bank of Nigeria’s Global Standing Instruction (GSI) framework.

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Launched in 2020, the GSI allows commercial banks to debit overdue loans from borrowers’ other accounts across participating institutions without fresh consent, improving recovery and credit discipline.

However, fintechs and microfinance banks remain largely excluded, creating an uneven playing field and enabling borrowers to exploit system gaps.

Adedeji Olowe, founder of Lendsqr, said borrowers are increasingly moving funds to accounts outside the reach of the GSI to avoid repayment.

“Because finance houses and fintech lenders are not connected to the platform, some customers obtain loans from commercial banks and shift funds elsewhere, undermining recovery efforts,” he noted.

Henry Obiekea, Managing Director of FairMoney, described the delayed rollout to non-bank lenders as a significant setback.

He argued that broader GSI access would improve repayment behaviour and strengthen the overall credit ecosystem.

Rising defaults persist despite the use of Bank Verification Numbers (BVN) and credit bureau checks. Gbemi Adelekan, President of the Money Lenders Association, noted that while credit assessments are robust, defaulters exploit digital wallets and neobank platforms to evade repayment.

Regulatory action is being sought as the risk grows. Industry stakeholders urge the Federal Competition and Consumer Protection Commission (FCCPC) and the CBN to accelerate GSI integration for fintechs and microfinance banks.

The CBN has acknowledged the issue, with Governor Olayemi Cardoso confirming that expansion to include non-bank lenders is underway, with phased completion expected by 2026.

Some institutions, like NIRSAL Microfinance Bank, have successfully leveraged the GSI to recover COVID-19 intervention loans, demonstrating the framework’s effectiveness when applied beyond commercial banks.

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Lenders warn that without broader GSI inclusion, opportunistic defaults may continue to weaken credit discipline and limit access to responsible lending, making the framework’s expansion a pressing priority for the digital finance sector.