The Central Bank of Kenya has unveiled a revised Risk-Based Credit Pricing Model (RBCPM) that will anchor bank loan rates to the Kenya Shilling Overnight Interbank Average (KESONIA) beginning September 1, 2025.
- •The model aims to strengthen monetary policy transmission, enhance transparency, and ensure lending reflects borrower risk profiles.
- •Under the new framework, all variable-rate loans in shillings will be priced as KESONIA plus a premium known as “K,” alongside fees and charges.
- •Where KESONIA is not practical, the Central Bank Rate (CBR) will be used as a fallback.
CBK will publish KESONIA daily, while banks must disclose weighted-average lending rates, the size of their premium “K,” and all charges for each product on their websites and the Total Cost of Credit (TCC) platform.
The rollout begins with new variable-rate loans on September 1, 2025, while existing loans will migrate by February 28, 2026, following a six-month transition period. Banks are expected to update contracts, systems, and pricing models accordingly.
Foreign currency loans and fixed-rate facilities are excluded.
Consultations and Pushback
The move follows months of consultations and pushback from commercial banks. In April 2025, CBK floated a proposal to anchor loans to the CBR, drawing criticism from the Kenya Bankers Association (KBA) which warned of a possible return to rate controls.
Banks favored the interbank rate, arguing it aligns with international benchmarks like SONIA in the UK and SOFR in the US. By July, CBK signaled it would settle on the interbank average, even considering compounded models to better reflect market dynamics.
In mid-August, CBK Governor Kamau Thugge gave banks six months to comply. The regulator also secured legal clarity from a June Supreme Court ruling affirming that banks require Cabinet Secretary approval for rate changes, reinforcing the need for transparent governance.
Market Impact
The adoption of KESONIA represents a structural shift in Kenya’s credit market. It will tie lending rates more closely to real-time liquidity conditions and limit the discretion banks previously had in setting base rates.
This policy shift also dovetails with CBK’s monetary stance. On August 12, 2025, the Bank cut its policy rate by 25 basis points to 9.50%, its seventh consecutive reduction, to stimulate private sector lending amid contained inflation.
By renaming the overnight rate KESONIA, CBK has also aligned Kenya with global reforms replacing older benchmark rates. Like SONIA in the UK or SOFR in the US, KESONIA is a transaction-based, volume-weighted measure of actual overnight trades.
