Towards an efficacious legal framework for debt recovery in developing countries

Abstract

Debt default and debt accumulation threaten the financial systems of many developing countries. They also constitute a potential source of systemic failure of the particular financial systems as well as of the global financial system. Therefore, this article identifies the factors for debt default and debt accumulation to include grant of loans to incompetent borrowers, grant of loans in excess of the regulatory cap on credit exposure, lack of transparency in financial reporting, grant of loans without adequate collateral security, over‐valuation of security, application of short‐term loans to long‐term projects, informational asymmetry, wilful default, fraud by bank officials, inefficient financial system supervision and inefficient judicial systems. It reviews the existing legal framework in Nigeria for debt recovery, particularly banking and financial institutions statutes, insolvency law, corporation statutes as well as judicial and law enforcement systems, and suggests reforms to ease debt repayment and make the legal framework more efficacious.