Central Bank of Kenya. Photo | courtesy.
The Kenya Bankers Association (KBA) has welcomed the Central Bank of Kenya’s (CBK) revised loan pricing framework for variable-interest rates, saying the move will expand access to affordable credit for both individuals and businesses.
The new formula, announced by CBK on August 26, introduces greater transparency by requiring banks to disclose all components of loan interest rates, including a borrower’s credit history.
KBA Chief Executive Officer Raimond Molenje said this shift will enhance understanding of loan pricing and encourage responsible repayment behavior.
“This change will facilitate greater access to bank credit for both individuals and businesses, enhancing the banking sector’s capacity to support Kenya’s economic growth,” said Molenje.
The framework is expected to significantly increase lending to previously underserved groups such as MSMEs, women-led enterprises, youth, and persons with disabilities. It also strengthens the monetary policy transmission mechanism, ensuring changes in policy rates are directly reflected in the cost of credit.
A key feature of the framework is the adoption of the Kenya Shilling Overnight Interbank Average (KESONIA) as the benchmark for all variable-interest loans.
Banks will now link loan pricing to this market-determined rate, which reflects the cost of overnight interbank borrowing. Borrowers with strong credit profiles will benefit from lower, risk-adjusted premiums.
Banks are expected to gradually adopt the new pricing model over the next six months. From September 1 to November 30, 2025, lenders will review and align their loan pricing models before applying KESONIA as the new base rate for variable-interest loans starting February 28, 2026.
Molenje emphasized that the revised framework is not just a compliance requirement but also a collective effort to broaden financial inclusion.
“The banking industry commits to fully support the implementation of the new framework, strengthening customer centricity and promoting ethical banking practices,” he said.
