In a statement, Kenya Bankers Association (KBA) Chief Executive Officer Raimond Molenje said the framework enhances transparency by requiring banks to disclose all the components that make up interest rates, giving borrowers a clear and comprehensive understanding of loan costs.
He added that the formula integrates borrowers’ credit histories into the pricing structure, making repayment behaviour a key determinant of interest rates. “The shift is expected to significantly expand access to credit for previously underserved groups, including MSMEs, youth, persons with disabilities, and women-led enterprises. It will also strengthen the transmission of monetary policy decisions, ensuring that changes in the policy rate are more directly and efficiently reflected in the cost of credit,” Molenje noted.
A key feature of the new framework is the adoption of the Kenya Shilling Overnight Interbank Average (KESONIA) as the common base rate for all variable-interest loans. KESONIA, a market-determined rate reflecting the interest at which banks lend to each other overnight, aligns Kenya with global best practice.
Under the new structure, variable-interest loans will consist of the KESONIA base rate plus a premium based on a customer’s individual risk profile. Borrowers with good credit scores will therefore enjoy lower rates, while higher-risk clients will be priced accordingly.
The transition will be rolled out over six months. Between 1 September and 30 November 2025, banks will review and update their loan pricing models and seek approval from their respective Boards of Directors. Thereafter, banks will begin issuing new variable-rate loans using KESONIA as the base rate. By 28 February 2026, all existing variable-rate loans will have migrated to the new framework.
Molenje further commended CBK’s regulatory role in steering reforms to promote ethical banking, customer-centric practices, and greater transparency in credit pricing. “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, thereby strengthening the banking sector’s role in powering Kenya’s economic growth,” he said.
[/full]
