NAIROBI, Kenya — The Central Bank of Kenya (CBK) has released an updated version of its Risk-Based Credit Pricing Model (RBCPM), introducing significant changes to how banks will calculate interest rates on loans. The move comes in response to widespread feedback from stakeholders in the financial sector.
Among the key changes is the adoption of the Interbank Rate, compounded in arrears, as the new benchmark for pricing loans, replacing the previously proposed Central Bank Rate (CBR).
The revised model was developed after CBK first published the initial proposal on April 23, 2025.
Since then, the regulator received 45 responses from a diverse group of stakeholders, including 13 commercial banks, the IMF, EBRD, Kenya Bankers Association (KBA), Kenya Association of Manufacturers (KAM), and various consultancies and individuals.
“In light of the feedback, CBK has made several amendments to the initial proposal to enhance clarity and alignment with market conditions,” said Matu Mugo, Director of Bank Supervision, in a circular shared with bank and mortgage finance executives.
“The purpose of this letter is to forward the attached revised consultative paper for your review and comment.”
The CBK explains that using the Interbank Rate as a base aligns Kenya’s lending framework with global benchmarks such as SOFR (U.S.) and SONIA (U.K.).
The new formula will determine the final lending rate as the Interbank Rate plus a premium (“K”) and additional fees.
The premium will reflect factors like a bank’s operating costs, the expected shareholder return, and each borrower’s creditworthiness, based on a detailed risk-scoring framework. These costs will be disclosed to borrowers, published on the Total Cost of Credit (TCC) website, and reported to CBK.
Concerns raised by banks included the inaccuracy of CBR in reflecting real funding costs, opposition to publicizing sensitive cost data, and a proposed transition period they felt was too short.
CBK has responded by extending the transition to six months, three for internal model approval and three for full implementation.
The updated framework will not apply to certain loan types, including forex loans, digital credit, Islamic finance, staff loans, and credit cards.
CBK also plans to overhaul the TCC website launched in 2017 to make it more user-friendly, especially on mobile.
