The Central Bank of Kenya (CBK) has announced the introduction of a revised Risk-Based Credit Pricing Model (RBCPM) for the banking sector, aimed at strengthening monetary policy transmission, enhancing transparency in lending and promoting responsible borrowing.
The new framework, which takes effect on September 1, 2025, for all new variable rate loans, is anchored on the Kenya Shilling Overnight Interbank Average (KESONIA) a rebranded benchmark designed to align Kenya’s lending practices with international standards.
In its statement, CBK said the objective of the model is “to strengthen monetary policy transmission, enhance transparency in lending, and promote responsible lending by aligning credit pricing with the borrowers’ risk profiles.”
Under the revised model, the total lending rate will be calculated as KESONIA plus a premium (K), where the premium accounts for the costs related to lending, return to shareholders, and the borrower’s risk profile. The total cost of credit will also include fees and charges, making borrowing costs clearer for consumers.
The regulator explained that “KESONIA will be applicable to all variable rate loans except for foreign currency denominated loans and fixed rate loans. Where KESONIA is not practical, customers may be availed the use of the Central Bank Rate (CBR) as the alternative reference rate.”
To ensure accountability, CBK has directed banks to publish their weighted average lending rates, premiums, fees and charges on their websites as well as on the Total Cost of Credit (TCC) portal. This, the Bank said, will guarantee greater transparency for customers evaluating loan products.
The revised RBCPM will apply immediately for new loans, while existing variable rate facilities will transition by February 28, 2026, after a six-month adjustment period. Financial analysts say the reforms are likely to bring more discipline to the credit market and align lending practices with global benchmarks, while giving borrowers clearer visibility into the true cost of loans.
