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The Central Bank of Kenya has launched the KESONIA Compounded Index, a benchmark tracking the cumulative build-up of daily KESONIA overnight rates.
- •The index began at 100.0000 on 1 September 2025 and stood at 100.2862 on 12 September, showing a 0.29% gain, equal to about 9.36% annualised.
- •KESONIA, the Kenya Shilling Overnight Interbank Average, is the volume-weighted rate at which banks lend unsecured funds overnight.
- •It reflects real interbank transactions and responds to liquidity conditions and monetary policy.
By compounding daily rates, the index turns short-term moves into a continuous return measure, giving lenders and investors a clear view of overnight funding costs.
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The KESONIA Compounded Index is calculated each business day using this formula:
Index₍ᵢ₎ = Index₍ᵢ₋₁₎ × (1 + (KESONIA₍ᵢ₋₁₎ × a₍ᵢ₋₁₎) / 365))Where:
- •Index₍ᵢ₎ is the index on day i.
- •KESONIA₍ᵢ₋₁₎ is the previous day’s KESONIA rate.
- •a₍ᵢ₋₁₎ is the number of calendar days between day i-1 and i.
This approach compounds the effect of daily overnight rates, even over weekends and holidays, and produces a smooth return measure. It mirrors how SONIA and SOFR are compounded in other markets.
To convert the index change into an annualised rate for a period, CBK applies:
Annualised Rate = ((Indexᵧ / Indexₓ) − 1) × (365 / d)Where d is the number of days between the two dates. For example, the rise from 100.0000 on 1 September to 100.2862 on 12 September gives about 9.36% annualised.
The index is published daily on CBK’s website.
How It Will Shape Loan Pricing
The revised Risk-Based Credit Pricing Model (RBCPM) took effect on 1 September 2025 for new variable-rate loans and from 28 February 2026 for existing ones. Under this model:
Lending Rate = KESONIA + Premium (K) + Fees/ChargesThe premium will cover banks’ cost of funds, return on equity, and a borrower-specific risk margin. Fees will include origination, processing, negotiation, and commitment charges. Fixed-rate and foreign currency loans will be exempt, and the Central Bank Rate (CBR) will serve as a fallback if KESONIA data is unavailable.
KESONIA replaces the CBR as the base rate for variable loans. CBK says this will improve policy transmission and transparency. It is a renamed version of the overnight interbank average rate, aligned with global benchmarks like SONIA (UK) and SOFR (US).