The banking industry says the Central Bank of Kenya’s (CBK) proposed Risk-Based Credit Pricing Model could stifle access to credit for vulnerable enterprises, describing it as a reintroduction of regulatory control over lending rates.
In a statement, the Kenya Bankers Association (KBA), argued that CBK’s proposal, which mandates the Central Bank Rate (CBR) as the base rate and subjects lending premiums to regulatory approval, effectively amounts to interest rate capping.
According to KBA, such controls would restrict credit access, particularly for small businesses, low-income households, and micro-enterprises, mirroring the adverse effects experienced between 2016 and 2019 under the previous interest rate caps.
The industry warns that the proposed framework undermines its ability to deliver on its public commitment to extend Ksh150 billion annually in new loans to Micro, Small, and Medium Enterprises (MSMEs) from 2025 to 2027, a pledge made last year.
Instead, KBA urges a market-based framework anchored on the interbank rate, a transparent benchmark aligned with global best practices used in jurisdictions such as the United States, United Kingdom, and European Union.
This model, KBA says, would ensure effective monetary policy transmission, risk-sensitive credit pricing, and broader access to finance.
It notes that a flexible and transparent model, where premiums reflect differentiated borrower risk, operational costs, and prevailing market conditions, is consistent with Kenya’s liberalised interest rate regime. Disregarding the interbank market, it argues, weakens monetary policy effectiveness and misaligns market outcomes, with unintended consequences for credit availability.
KBA reiterates its commitment to working constructively with CBK and all stakeholders to co-create sustainable credit pricing reforms that advance financial inclusion and support economic growth.
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