The Loan Recovery Process in Nigeria: A Guide for Lenders

Loan recovery in Nigeria follows a set order: notify the borrower of the default, engage them before any collection starts, send a formal demand, agree a repayment plan where possible, call on any guarantor or security, and only then go to court and enforce the judgment. For banks, microfinance banks and other CBN-regulated lenders, several of these steps are written into the CBN Consumer Protection Regulations.

Step 1: Notify the borrower of the default

The CBN rules require early notice before default charges apply (section 4.6):

• Deposit money banks must notify the customer within 3 days of the first day of default that a default charge will apply after 7 days from the due date.
• Other CBN-regulated institutions, such as microfinance banks and finance companies, must notify the customer on the first day of default that a default charge will apply after 3 days.
• The default charge must be shown in the statement of account separately from interest.

Step 2: Engage the borrower before collection starts

Institutions must "engage and give customers notice(s) of outstanding obligations prior to the commencement of a debt collection" (section 5.5.1). In practice: call or write to the borrower directly, confirm the balance, ask why they have fallen behind, and keep a record of every contact. Many accounts are resolved at this stage with a restructured plan.

Step 3: Send a formal letter of demand

If the borrower does not respond or pay, a letter of demand states the exact balance, how it is made up and the deadline to pay, and says what will follow if it is ignored. A letter signed by a lawyer shows the borrower that court is the next step. In Lagos, serving a letter of demand is also a condition for using the Small Claims Court (Lagos Practice Direction on Small Claims 2023, Article 2). See our letter of demand sample.

Step 4: Agree a repayment plan in writing

Where the borrower wants to pay but cannot clear the balance at once, a written repayment agreement, signed by the borrower, gives you a clear acknowledgement of the debt and a record to rely on if the plan fails.

Step 5: Call on the guarantor or the security

A guarantor can be asked to pay under the terms of their guarantee. For secured loans, the CBN rules set the order (section 5.5):

• Foreclose only when other recovery steps have failed.
• Give the customer the option of a private sale, to be exercised within 30 days before foreclosure, unless they waive it.
• Apply the net proceeds to the loan account immediately, tell the customer of any balance, and give them a report of the sale showing the process, proceeds, expenses and net proceeds.

Step 6: Go to court

An unpaid loan is a fixed ("liquidated") sum, which suits the faster court routes. In Lagos, claims of up to ₦5,000,000, excluding interest and costs, can go to the Small Claims Court, with a target of 60 days from filing to judgment (Lagos Practice Direction on Small Claims 2023, Articles 2 and 13). Larger balances go to the Magistrates’ Court or the High Court, depending on the amount. Read how the Lagos Small Claims Court works.

Step 7: Enforce the judgment

If the borrower still does not pay after judgment, it can be enforced, for example through a garnishee order against money held in their bank account. See enforcing a judgment.

What should lenders keep on every file?

• The signed loan agreement, the offer letter and any guarantee.
• The statement of account and full repayment history.
• Copies of every default notice and reminder, with dates.
• A current address for the borrower, for service.
• Notes of every call or visit, and any written acknowledgement of the debt.

Pandas LP runs steps 3 to 7 for lenders: a demand letter reviewed and signed by a licensed practitioner from ₦20,000 per account, reminders on days 7, 10 and 14, a weekly report on every file, and court filing only with your written approval. Loan recovery for lenders.

Before you start, read how to recover loans from defaulters lawfully: the contact rules apply at every step.

Sources: CBN Consumer Protection Regulations (2019), sections 4.6 and 5.5; Lagos Practice Direction on Small Claims 2023, Articles 2 and 13.