Kenyans with poor credit face higher loan costs under CBK’s revised model

Kenyans carrying a poor repayment record will soon find borrowing more expensive, following changes to the way banks set interest rates.

The Central Bank of Kenya (CBK) has introduced a risk-based pricing model that ties the cost of credit directly to a borrower’s financial history.

Governor Kamau Thugge explained the shift on Tuesday in a televised interview, stressing that access to credit would not be denied but would come at a higher price for unreliable customers. 

"If you are a very risky customer and you don't pay your loans on time, it is not that you are prevented from accessing credit; the credit would be there, but the price will be high," Thugge stated.

The CBK Governor maintained that the reform is intended to inject fairness into lending and help bring down interest rates for those who repay on time.

Banks will now be required to start from a uniform base rate and then assess risk, a departure from the past system where each bank set its own terms.

He argued that the previous approach, which was pegged to the Central Bank Rate (CBR), often tilted in favour of lenders.

"With the new framework, we will be able to look and see where it makes sense from the qualitative and quantitative point of view so that it is not used to raise rates without a proper foundation," he remarked.

Highlighting how banks had behaved under the old system, Thugge added, "Previously, when the rates would go up, the commercial banks would immediately raise their rates. When the time came to stimulate the economy by reducing the rate, we saw some reluctance by the banks to lower their rates."

The regulator has already mapped out the rollout.

All new variable-rate loans issued from September 1 will follow the new pricing rules.

Existing loans of this kind will be converted after a six-month transition, with the deadline set for February 28, 2026.

The CBK said the decision forms part of efforts to make monetary policy more effective and to encourage responsible lending practices.

Aligning loan costs with borrowers’ profiles, it noted, will improve transparency in the banking sector while discouraging careless borrowing.

For ordinary Kenyans, the lesson is straightforward: a clean repayment record could ease access to cheaper credit, while a poor credit score will weigh heavily on the pocket.