NAIROBI, Kenya, Aug 26 – The Central Bank of Kenya (CBK) has announced the rollout of a revised Risk-Based Credit Pricing Model (RBCPM), expected to transform how banks price loans by directly linking lending rates to borrowers’ risk profiles.
The framework, developed after months of consultations with lenders, development partners, industry associations, non-bank financiers, and other stakeholders, will take effect on September 1, 2025, for all new variable-rate loans.
“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 borrowers’ risk profiles,” CBK said in a statement Tuesday.
The regulator noted that the final model incorporates recommendations from banks, academia, and consultancy firms.
A key feature of the new framework is the Kenya Shilling Overnight Interbank Average (KESONIA), which will replace the current overnight interbank average rate to align with international best practice.
Variable-rate loans
KESONIA will serve as the benchmark reference rate for variable-rate loans, closely tracking the Central Bank Rate (CBR) under the prevailing monetary policy framework.
Under the revised formula, the total lending rate will be calculated as KESONIA plus a premium, with the premium covering lending costs, shareholder returns, and borrower risk. The total cost of credit will include KESONIA, the premium, and all applicable fees and charges, with banks required to disclose costs such as origination, processing, negotiation, and commitment fees.
To enhance transparency, lenders will also be required to publish their weighted average lending rates, average premiums, and applicable fees for each product on both their websites and the Total Cost of Credit (TCC) platform.
For existing variable-rate loans, CBK has allowed a six-month transition period, meaning the revised model will take effect from February 28, 2026.
According to CBK, the revised pricing model represents a significant policy shift aimed at strengthening the link between monetary policy decisions and commercial lending rates, while giving borrowers greater clarity on how credit costs are determined.
