NAIROBI, Kenya – Kenyan banks have expressed reservations over a proposal by the Central Bank of Kenya (CBK) to use the Central Bank Rate (CBR) as the primary reference rate for bank lending, combined with a regulated lending premium.
The Kenya Bankers Association (KBA) has warned that the proposal could reduce flexibility in lending practices and limit credit access for small businesses and low-income borrowers.
KBA argued that the proposed framework could lead to interest rate caps, which have historically reduced credit availability, particularly for micro, small, and medium-sized enterprises (MSMEs) and vulnerable groups.
The association pointed out that rate caps from 2016 to 2019 had led to reduced access to credit, especially in underserved sectors.
“We appreciate the Central Bank of Kenya’s engagement with stakeholders on credit pricing reforms, but the proposal undermines CBK’s own monetary policy transmission by disconnecting lending rates from prevailing market conditions,” said Raimond Molenje, CEO of KBA.
While CBK has defended its proposal, emphasizing that it aims to address high lending rates and improve credit pricing transparency, KBA has proposed the interbank rate as a market-driven base reference.
The association believes that using the interbank rate would better reflect global best practices and provide flexibility for banks to price risk across various customer segments.
Despite the opposition, KBA expressed willingness to collaborate with CBK to find solutions that promote transparency, sustainable lending practices, and improved access to affordable credit for all Kenyans.
Both parties agree on the need for credit pricing reforms but differ on the approach to achieve a more inclusive financial system.
