The banking industry has welcomed the revised loan pricing formula for variable-interest rates announced by the Central Bank of Kenya (CBK) on August 26, 2025.
The new framework is designed to enhance transparency and fairness in the cost of borrowing while strengthening the banking sector’s role in supporting economic growth. It requires banks to fully disclose all components that make up interest rates, enabling borrowers to clearly understand how their loan rates are determined. Importantly, borrowers’ credit history will now play a central role in pricing, making past repayment behaviour a key factor in determining loan interest.
Kenya Bankers Association(KBA) said lenders view the change as a chance to expand access to credit for households and businesses.
“This framework is not only about compliance, it is about giving borrowers a fairer deal and ensuring credit reaches more sectors of the economy,” said KBA chief executive Raimond Molenje.
A major highlight of the new formula is the adoption of the Kenya Shilling Overnight Interbank Average (KESONIA) as the common base rate for all variable-interest loans. KESONIA, which reflects the overnight lending rate among banks, aligns Kenya with international best practices. Under the new structure, a borrower’s loan rate will consist of the KESONIA base plus a risk-based premium determined by their credit profile. Customers with strong repayment histories and good credit scores will benefit from lower loan rates.
Central Bank of Kenya (CBK) Governor Kamau Thugge on Wednesday September 3, stated that banks are expected to transition to the new risk-based within the next three months with new loans expected to be priced with the new pricing model starting December 1, 2025.While all existing loans are expected to migrate to KESONIA-based pricing by February 28, 2026.
Thugge further elaborated on the new model’s intent, noting that while it does not exclude anyone from formal finance, it does differentiate pricing based on borrower risk.
“If you are a very risky customer and you don’t pay your loan on time, it does not mean that you will be prevented from accessing credit , the credit will be there, but the price will be high and that will be reflected by what you are charged by the bank,”he stated.
Governor Thugge emphasized that the move aims to boost competition and transparency in the sector while enabling better policy transmission.
The banking industry praised the CBK’s leadership in driving reforms aimed at strengthening transparency, customer centricity and ethical practices within the financial sector.
Banks have pledged their full support for the implementation of the new system, framing it not only as a regulatory compliance measure but also as a critical step toward expanding credit opportunities and stimulating Kenya’s economic progress.
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