The Kenya Bankers Association (KBA) has backed the Central Bank of Kenya’s new risk-based approach to credit pricing, which will provide a new benchmark for interest rates to be charged on commercial bank loans.
In a statement on Wednesday, September 3, the Association said that the reforms will open up access to bank credit for individuals and enterprises, enhancing the sector’s ability to support Kenya’s economic growth.
Greater Transparency and Borrower Awareness
KBA emphasized that the new model will promote transparency by forcing banks to disclose all the elements that constitute interest rates.
By making these factors transparent, the bankers explained, borrowers will have a full picture of the actual cost of loans before going for credit.
The association added that the revised model will integrate a borrower’s credit history more directly into loan pricing, making repayment behavior a central factor in determining interest charges.
Expanding Credit to Underserved Groups
“The banking industry welcomes the revised loan pricing formula for variable-interest rates, announced by the Central Bank of Kenya (CBK) on August 26, 2025,” the bankers stated.
“This shift is expected to significantly expand access to credit for previously underserved groups, including MSMEs, youth, persons with disabilities, and women-led enterprises,” they added.
KESONIA as the New Benchmark
Among the most significant of these is using the Kenya Shilling Overnight Interbank Average (KESONIA) as the benchmark base rate for all variable-interest loans.
The Association affirmed that KESONIA, which takes its basis from the rate on which banks lend to each other overnight, provides a market-determined benchmark that brings Kenya in line with international best practice.
Under this system, banks will set variable-interest rates by combining the KESONIA base rate with a premium that reflects each borrower’s risk profile.
Implementation Timeline and Industry Commitment
The transition to the new model will take place over six months, from September 1 to November 30, 2025, during which banks are required to review and update their loan pricing models.
“Bankers recognise the important regulatory role CBK has played in guiding the sector to enhance transparency, strengthen customer centricity, ensure ethical banking practices, and roll out the revised risk-based pricing of credit,” the Association noted.
It went on to add, “The banking industry commits to fully support the implementation of the new framework, not only as a compliance requirement but also as an enabler of our collective ambition to expand access to credit for both individuals and businesses.”
