The Central Bank of Kenya (CBK) has unveiled a revised Risk-Based Credit Pricing Model (RBCPM) aimed at improving lending transparency, responsible borrowing, and market efficiency in Kenya’s financial sector. The updated framework introduces KESONIA, a new benchmark lending rate, and comes into effect on September 1, 2025 for new variable-rate loans.
The announcement follows an extensive public consultation process initiated on April 23, 2025, where CBK received submissions from commercial banks, non-bank financial institutions, development partners, industry associations, consultancy firms, academia, corporate organizations, and individual borrowers. CBK Governor Kamau Thugge said the new framework is designed to make lending practices fairer and more predictable.
Under the revised model, CBK has introduced the Kenya Shilling Overnight Interbank Average (KESONIA), a market-driven benchmark that reflects short-term borrowing costs between banks. KESONIA replaces previous reference rates and better aligns Kenya’s lending framework with international best practices.
The new formula for calculating lending rates is:
Total Lending Rate = KESONIA + Premium (“K”)
- KESONIA: A market-based reference rate.
- Premium (K): Represents the cost of lending, expected shareholder returns, and the borrower’s individual risk profile.
The Total Cost of Credit (TCC) — what a borrower ultimately pays — will now be:
TCC = KESONIA + K + Fees & Charges
- From September 1, 2025 → All new variable-rate loans will adopt the revised RBCPM.
- By February 28, 2026 → Existing variable-rate loans will transition to the new model after a six-month adjustment period.
- Exemptions → The model does not apply to fixed-rate loans or foreign currency-denominated loans.
- Where KESONIA cannot be used, the Central Bank Rate (CBR) will serve as an alternative benchmark.
To enhance openness in the lending market, CBK has directed all commercial banks to publish:
- Their weighted average lending rates
- The premium (K) applied to different borrower categories
- All applicable fees and charges
This information will be available on each bank’s website and the Total Cost of Credit (TCC) portal, enabling borrowers to compare rates easily and make informed financial decisions.
Financial experts believe the revised RBCPM will improve access to affordable credit, encourage responsible borrowing, and enhance competition among lenders. By tying lending rates to KESONIA and borrowers’ risk profiles, CBK aims to create a more transparent, fair, and efficient credit market.
The changes come at a time when Kenya’s economy is seeking stable and sustainable credit growth, and the move is expected to boost confidence among borrowers, lenders, and investors alike.
