The Central Bank of Nigeria (CBN) has warned financial institutions in the country to desist from compelling borrowers to patronise certain underwriting companies for their insurance covers to access some loans.
The central bank gave the directive in its consumer protection guidelines on ‘Responsible business conduct.’
It read, “Financial institutions shall not compel a consumer to buy a product or service, such as insurance or valuation service from a particular provider as a pre-condition for the grant of a credit facility.”
Lenders usually tell borrowers to take insurance covers to protect risk against unforeseen circumstances that may impede their ability to pay.
Some of such circumstances are permanent disability, death or other forms of losses.
However, because some lenders have a relationship or even subsidiaries with certain insurance companies, they, therefore, compelled borrowers to patronize them.
This, according to CBN, impedes thorough assessment of borrowers’ ability to repay.
Therefore to ensure consumers ability to repay credit facilities efficiently, the CBN stated that financial institutions must comply with its specific requirements.
It stated that “the requirements were described in credit risk assessment procedures, the type and circumstances for which credit would be suitable, as well as clear lines of authority for approving the product.”