NAIROBI, Kenya– The Central Bank of Kenya (CBK) has introduced a revamped Risk-Based Credit Pricing Model (RBCPM) that will redefine how commercial lenders set interest rates, tying loan pricing directly to the creditworthiness of borrowers.
The model, which comes into force on September 1, 2025, for new variable rate facilities, is the product of several months of consultations with financial institutions, industry bodies, development partners, and non-bank lenders.
“The objective of the revised RBCPM is to strengthen monetary policy transmission, enhance transparency in lending, and promote responsible lending by aligning credit pricing with the borrowers’ risk profiles,” CBK said in a statement.
“The final model follows extensive input from stakeholders including banks, academia, and consultancy firms, whose recommendations have been factored into the final design.”
A key feature of the reform is the adoption of the Kenya Shilling Overnight Interbank Average (KESONIA) as the new reference rate, replacing the existing overnight interbank average. The regulator noted that KESONIA aligns Kenya’s framework with global standards and will move closely in tandem with the Central Bank Rate (CBR).
Loan rates under the revised structure will be computed as KESONIA + Premium (K), with the premium reflecting administrative costs, expected returns, and borrower-specific risk.
The total cost of credit will further include KESONIA + K + Fees and Charges, and lenders must now spell out all applicable levies—ranging from origination and processing to negotiation and commitment fees.
To enhance transparency, commercial banks will be obliged to publish their weighted average lending rates, average premiums, and related charges on both their websites and the Total Cost of Credit (TCC) platform.
While the changes apply immediately to new loans, existing variable-rate facilities have a grace period until February 28, 2026, to transition to the new framework.
CBK underscored that the reform is designed not only to tighten the transmission of monetary policy decisions but also to give borrowers clearer visibility into how loan costs are structured, thereby fostering greater accountability in the credit market.
