Kenya’s banking industry is set for a major transformation after the Central Bank of Kenya (CBK) unveiled a new loan pricing formula aimed at expanding access to credit for individuals and businesses.
The revised framework, announced on 26 August 2025, will apply to all variable-interest loans and is expected to make credit more affordable and transparent. The Kenya Bankers Association (KBA), which represents commercial banks, has welcomed the changes, saying the move will strengthen financial inclusion and boost economic growth.
The new formula requires banks to disclose all components that determine loan interest rates, including the base lending rate and borrower-specific risk premiums. This change will give borrowers a clearer picture of how their loan costs are calculated.
The system will also integrate a borrower’s credit history as a central factor in determining rates. Customers with good repayment records will qualify for lower borrowing costs, while those with weaker histories will pay higher premiums.
According to the KBA, the shift aims to significantly expand access to credit for groups that have historically been underserved, including micro, small and medium-sized enterprises (MSMEs), young people, women-led enterprises and persons with disabilities.
At the core of the reform is the introduction of the Kenya Shilling Overnight Interbank Average (KESONIA), a market-determined rate that will replace previous benchmarks for calculating variable-interest loans.
KESONIA reflects the average rate at which banks lend to each other overnight, aligning Kenya with global best practices in loan pricing. Under the new structure, the interest charged on variable-rate loans will be calculated as KESONIA plus a margin based on a borrower’s individual risk profile.
Borrowers with stronger credit scores will therefore access cheaper loans, while those with weaker profiles will face slightly higher rates.
The rollout will take place over the next six months. Between 1 September and 30 November 2025, banks will review their loan products, seek approvals from their boards of directors, and align systems with the new framework.
From 1 December 2025, all new variable-interest loans will use KESONIA as the base rate. Existing variable-interest facilities will migrate to the new formula by February 28, 2026.
Banking leaders say the reforms will strengthen consumer trust, reduce uncertainty and encourage more responsible lending and borrowing.
Raimond Molenje, Chief Executive Officer of the KBA, said the move would not only align Kenya’s credit market with international standards but also enhance ethical banking practices.
“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,” Molenje said.
Financial inclusion has been a central policy objective for Kenya, which has earned global recognition for innovations such as mobile money. Yet, high borrowing costs and opaque loan terms have long been cited as barriers to wider access to finance.
By prioritising transparency and linking loan pricing to credit behaviour, the new formula could help expand credit uptake across the country. It is also expected to empower consumers with better knowledge of their borrowing costs, enabling more informed financial decisions.
Industry observers note that the emphasis on MSMEs, women entrepreneurs and youth is particularly timely. These groups represent some of the fastest-growing segments of the Kenyan economy but remain disproportionately excluded from formal credit markets.
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