The Kenya Bankers Association (KBA) has thrown its weight behind the revised Risk-Based Credit Pricing Model (RBCPM) by the Central Bank of Kenya (CBK). The CBK rolled out the new model on August 26, 2025, anchoring it on the Kenya Shilling Overnight Interbank Average (KESONIA), where the total lending rate will be determined as the sum of KESONIA and Premium K.
KESONIA is a reference rate that shows the average interest rate at which Kenyan banks lend and borrow from each other overnight in Kenyan shillings. Premium K is an additional amount added to the lending rate to calculate the final interest to be charged to a borrower.
The new framework took effect on September 1, 2025, on new variable loans, while on existing loans, the pricing formula is set to be effective on February 28, 2026.
KBA Highlights Benefits of Pricing Model
- Enhanced transparency. The framework requires banks to clearly disclose the components that go into the pricing of loans. This enlightens borrowers on how their loan interest rates are determined. The approach is set to address the menace of high interest rates and opaque pricing mechanisms in the credit market. Additionally, it upholds the monetary authority’s role in promoting customer centricity and ethical practices in lending.
- Reinforced monetary policy transmission. The formula passes the benefit or cost of changes in the Central Bank Rate (CBR) directly to the borrower, unlike before, where some lenders would suppress the benefit of low CBRs by charging high interest rates despite rate cuts. Currently, the CBR stands at 9.50% after the seventh straight cut by the Monetary Policy Committee in August 2025.
- Integration of borrowing history. The model makes the borrower’s credit history a key factor to consider in loan pricing. Customers with robust credit scores are set to enjoy cheaper loans.
- Inclusion of underserved groups. KBA notes that the blueprint is set to expand credit to marginalized groups, including Micro, Small, and Medium Enterprises (MSMEs), youth, women, and persons with disabilities.
- Support for economic growth. The revised RBPCM is set to increase the accessibility of loans to both individuals and businesses, fueling entrepreneurship, investment, expansion, and the creation of employment, thus making banks a key driver of Kenya’s economic growth.
- Market-based approach. The KESONIA-based framework makes sure loan pricing is determined by the forces of demand and supply rather than being arbitrarily set, aligning Kenya with international best practices.
According to KBA’s release, banks will review and update their loan pricing frameworks and seek approval from their respective Board of Directors and thereafter issue new variable-rate loans using KESONIA as the benchmark rate. KBA is fully committed to supporting the implementation of the revised model as a driver in credit expansion.
Also Read: CBK Powers up New Risk-Based Credit Pricing Model
