The Kenya Bankers Association (KBA) has expressed its support for the Central Bank of Kenya’s (CBK) revised loan pricing model, saying it will boost credit access and strengthen the banking sector’s role in driving economic growth.

In its statement, KBA said the industry welcomes the CBK’s move, which was announced on August 26, 2025.

“The banking industry welcomes the revised loan pricing formula for variable-interest rates, announced by the Central Bank of Kenya (CBK) on August 26, 2025. 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,” the association said.

The association explained that the framework will also make lending more transparent by requiring banks to provide full disclosure of the components that determine interest rates.

“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 stated.

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Another key aspect, according to KBA, is the use of borrowers’ repayment history as a critical factor in determining their loan costs.

This will allow those with strong credit records to secure more affordable loans while extending opportunities to groups that have often been left out of mainstream lending, including MSMEs, women-led businesses, young entrepreneurs, and persons with disabilities.

The revised structure introduces the Kenya Shilling Overnight Interbank Average (KESONIA) as the common base rate for all variable-interest loans.

KBA highlighted that KESONIA, which reflects the overnight rate at which banks lend to one another, aligns Kenya’s lending framework with global best practices.

Under the new model, interest rates will be set as the KESONIA rate plus a premium linked to an individual’s risk profile.

Borrowers with stronger credit ratings will pay lower rates, while those deemed riskier will face higher costs.

The industry outlined a clear transition timeline. Between September 1 and November 30, 2025, banks will review and update their pricing models and seek board approvals.

From December, new loans will be priced using KESONIA, while existing variable-rate facilities will migrate to the new framework by February 28, 2026.

KBA also acknowledged the CBK’s regulatory role in shaping the changes.

“The banking industry recognises 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,” the statement read.

The association also reaffirmed its commitment to the reforms, saying, “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.

With KESONIA at the centre of loan pricing, the new framework is expected to make credit more transparent, inclusive, and responsive to monetary policy, thereby reshaping Kenya’s lending landscape.