The banking industry has welcomed the Central Bank of Kenya’s (CBK) move to introduce a new loan pricing formula for variable-interest loans, saying the changes will boost access to credit and strengthen transparency in the sector.
The revised framework, announced by CBK on August 26, 2025, will be rolled out over the next six months. It introduces the Kenya Shilling Overnight Interbank Average, known as KESONIA, as the base rate for all variable-interest loans. This rate reflects the interest at which banks lend to each other overnight.
According to the Kenya Bankers Association statement released on Wednesday, September 3, 2025, the formula will make credit more affordable and predictable while aligning the country with global best practices.
“The 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,” the industry said in a statement.
A borrower’s credit history will now play a central role in determining their loan interest, with those who maintain good repayment records benefiting from lower rates. The association said the model would also give customers more clarity.
“The framework also promotes transparency by requiring banks to disclose all the components that make up interest rates, giving borrowers a clear and comprehensive understanding of loan interest rates,” the statement read in part.
Credit for groups
The sector expects the changes to expand access to credit for groups that have historically struggled to secure loans, including micro, small and medium-sized enterprises, young people, persons with disabilities, and women-led businesses.
The new approach is also expected to improve the transmission of monetary policy decisions by ensuring changes in CBK’s policy rate are more quickly reflected in borrowing costs.
“A key feature of the new framework is the introduction of the Kenya Shilling Overnight Interbank Average (KESONIA) as the common base rate for all variable-interest loans… Borrowers who maintain good credit scores will, therefore, secure loans at lower rates,” the statement said.
Between September 1 and November 30, banks will be required to update their pricing models and seek approval from their boards of directors.
New loans will then be issued under the KESONIA-based formula, while all existing variable-interest loans will migrate to the new framework by February 28, 2026.
The association praised the CBK for steering the sector toward more ethical and customer-focused practices.
“The banking industry recognises 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,” KBA said.
Kenya Bankers Association chief executive officer Raimond Molenje pledged the industry’s commitment to fully implementing the new structure.
“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, strengthening the banking sector’s role in powering Kenya’s economic progress,” he said.
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