The Kenya Bankers Association (KBA) has welcomed the revised loan pricing formula for variable-interest rates, announced by the Central Bank of Kenya (CBK) on August 26, 2025.
In a statement issued on Wednesday, September 3, the bankers’ association highlighted six key benefits of the new formula while committing to fully support its implementation.
According to the bankers, the change will facilitate greater access to bank credit for both individuals and businesses, enhancing the banking sector’s capacity to support Kenya’s economic growth.
KBA Highlights 6 Benefits of New Loan Pricing Formula
At the same time, KBA noted that the framework also promotes transparency by requiring banks to disclose all the components that make up interest rates, giving borrowers a clear and comprehensive understanding of loan interest rates.
“It further integrates a borrower’s credit history as a key pricing factor, making past repayment behaviour an important determinant of loan interest,” read the statement in part.
According to KBA, the shift is also expected to significantly expand access to credit for previously underserved groups. This includes Micro-, Small, and Medium-sized Enterprises (MSMEs), youth, persons with disabilities, and women-led enterprises.
The bankers further mentioned that the new formula will 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 across the banking sector.
Also Read: EXPLAINED: How Kenyans Will Repay Bank Loans Under the New CBK Rules
Banks to Start Issuing New Variable-Rate Loans Using KESONIA Base Rate
The association noted that a key feature of the new framework is the introduction of the Kenya Shilling Overnight Interbank Average (KESONIA) as the common base rate for all variable-interest loans.
KESONIA, a market-determined rate based on the interest at which banks lend to each other overnight, aligns Kenya with global best practices- according to KBA.
Under this structure, the variable-interest rate offered to a customer will consist of the KESONIA base rate plus a premium reflecting their individual risk profile.
KBA stated that borrowers who maintain good credit scores will, therefore, secure loans at lower rates. The transition to this new formula will be implemented over the next six months
Banks will review and update their loan pricing models and seek approvals from their respective Boards of Directors from September 1 to November 30, 2025.
Also Read: CBK Rolls Out Revised Loan Pricing Model
Once approved, banks will begin issuing new variable-rate loans using KESONIA as the base rate.
All existing variable-rate loans will migrate to the revised framework by February 28, 2026.
“KBA recognizes the important regulatory role CBK has played in guiding the sector to enhance transparency, strengthen customer centricity, ensure ethical banking practices, and roll out the revised risk-based pricing of credit,” KBA stated.
“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, strengthening the banking sector’s role in powering Kenya’s economic progress.”
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