Kenya Adopts New Risk-Based Loan Pricing Model: What Borrowers Need to Know

The Central Bank of Kenya (CBK) has announced a major shift in the way loans will be priced. From September 1, 2025, the country will adopt a revised risk-based credit pricing model anchored on the Kenya Shilling Overnight Interbank Average (KESONIA).

This change replaces the bi-monthly Central Bank Rate (CBR) with KESONIA, aligning Kenya with global best practices. The move is expected to improve transparency, enhance fairness, and give customers more clarity on how interest rates are determined.

Kenya Adopts New Risk-Based Loan Pricing Model: What Borrowers Need to Know.

How the New Loan Pricing Model Works

Under the new model, banks will calculate the total cost of credit based on three key components:

1. KESONIA – the average overnight interbank rate.

2. Risk Premium (K) – based on a customer’s creditworthiness.

3. Bank Fees and Charges – set by individual financial institutions.

This means your personal risk profile will directly affect the interest rate you pay. Low-risk customers will enjoy lower rates, while high-risk customers may pay slightly more.

Banks Welcome the Change

The Kenya Bankers Association (KBA) has praised CBK’s decision. According to KBA CEO Raimond Molenje, the model will make interest rates more transparent.

“Customers always ask why their loan is charged at 17%. With KESONIA, it will be clear to everyone. You can check the Central Bank website to see the reference rate, and it will apply across all banks,” Molenje explained.

This unified approach ensures customers can easily compare loan rates before making borrowing decisions.

Better Credit Information Sharing

To improve the credit scoring process, CBK has also approved a centralized credit information sharing portal.

Banks will now submit customer data through one system, giving all three credit bureaus access to the same information. This change will eliminate rating disparities and ensure fairer credit scores.

“With this single portal, credit bureaus will no longer have conflicting data. It brings consistency and better access to credit,” Molenje added.

No Hidden Borrowing Costs

Some borrowers feared the revised model could increase loan costs. However, KBA has clarified that the goal is not to raise interest rates arbitrarily.

All banks will now publish their rates on the CBK website, making it easier for borrowers to compare offers. Customers rejected by one bank due to high-risk profiles can still seek loans from others with different risk appetites.

What Borrowers Should Do Now

With the new model taking effect in September 2025, borrowers are advised to:

• Improve their credit history for better loan terms.

• Compare interest rates across banks before applying.

• Monitor KESONIA regularly via the CBK website.

Banks have requested CBK for more time to adjust their internal models, as board approvals may take up to three months.

Key Takeaways

• CBK replaces the Central Bank Rate with KESONIA.

• Interest rates will now depend on your credit score and risk profile.

• Banks will adopt a centralized credit data system for accurate scoring.

• Borrowers should start improving their credit records ahead of September 2025.

This shift marks a new era of transparency in Kenya’s lending market. By understanding the risk-based pricing model, borrowers can make smarter financial decisions and secure better loan deals.