Central Bank of Kenya Introduces New Credit Pricing Model
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The Central Bank of Kenya (CBK) has issued a revised Risk-Based Credit Pricing Model (RBCPM) for the banking sector, following a consultation process that began on April 23, 2025. The final revised RBCPM will guide how banks determine lending rates and ensure greater transparency in credit pricing.
According to the CBK, the objective of the revised RBCPM is to strengthen monetary policy transmission, enhance transparency in lending, and promote responsible lending by aligning loan pricing with borrowers’ risk profiles.
The review incorporated feedback from banks, non-bank financial institutions, industry associations, academia, development partners, consultancy firms, corporates, and individuals.
At the core of the new framework is the overnight interbank average rate, which has been renamed the Kenya Shilling Overnight Interbank Average (KESONIA) to align with international standards. The rate closely tracks the Central Bank Rate (CBR) under the current monetary policy implementation framework.
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Under the revised RBCPM:
- The total lending rate will be calculated as KESONIA + Premium (“K”), where the premium includes lending costs, shareholder returns, and the borrower’s risk profile.
- The total cost of credit will be expressed as KESONIA + K + Fees and Charges, giving borrowers a full picture of their repayment obligations.
- KESONIA will be applicable to all variable rate loans, excluding fixed-rate and foreign currency-denominated loans. In cases where KESONIA cannot be applied, banks may use the CBR as an alternative reference rate.
The revised RBCPM will be implemented in two phases. It will apply from September 1, 2025, for all new variable rate loans. For existing variable rate loans, the framework will come into effect on February 28, 2026, after a six-month transition period to allow banks to finalize necessary adjustments.
To improve transparency, lenders will be required to publish details of their lending products, including their weighted average lending rates, average premium (K), and all applicable fees and charges.
This information will be available both on individual bank websites and through the Total Cost of Credit (TCC) website, a platform maintained by CBK.
The CBK stated that the final revised RBCPM is expected to enhance fairness in credit pricing and help borrowers make informed decisions by clearly outlining the cost structure of loans under the new credit pricing model.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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