— Despite policy easing, borrowers ask: When will the relief reach us?
Kenya’s commercial banks are preparing for a season of lower interest rates, buoyed by the Central Bank’s recent signal that it may ease monetary policy in the coming months. However, despite optimism in banking halls and boardrooms, many Kenyans remain skeptical — especially as the cost of borrowing continues to bite hard.
While the financial sector anticipates a wave of rate cuts, translating these policy shifts into cheaper loans for households and small businesses has proven sluggish at best. The disconnect between macro-level monetary easing and micro-level lending rates is widening — leaving millions wondering: Why is credit still so expensive?
📉 Policy Shift Sparks Optimism
The Central Bank of Kenya (CBK) recently paused its rate hikes after months of tightening, citing cooling inflation and a relatively stable shilling. With inflation easing to around 5.7%, there’s now talk of potential rate cuts in the second half of 2025.
This has sparked renewed optimism in the banking sector.
“We’re seeing room for rate adjustment,” said a senior executive at a top-tier bank. “The cost of funds is improving, and we expect that to eventually benefit borrowers.”
Indeed, the interbank lending rate — a key signal of liquidity — has softened in recent weeks, prompting banks to review their loan pricing strategies.
🏦 Why Loan Costs Remain High
Despite these developments, the average lending rate remains stubbornly high — hovering around 13.5% to 16%, depending on the institution and credit profile of the borrower.
Several factors are to blame:
- Risk Premiums: Banks remain wary of high default rates, especially among SMEs and individual borrowers still recovering from pandemic-era shocks.
- High Cost of Operations: Rising overheads, regulatory compliance costs, and investment in digital infrastructure continue to weigh heavily on banks’ margins.
- Lag in Policy Transmission: Even when CBK signals rate cuts, it often takes months — or longer — for the effect to trickle down into consumer and business loans.
“Monetary easing doesn’t mean instant loan relief,” explained economist Dr. Susan Mugo. “It takes time, and banks will always factor in their own risk appetite.”
👥 Borrowers Still Feeling the Heat
For many Kenyans, the reality hasn’t changed—interest rates remain punishing, particularly for small businesses that rely on credit to stay afloat.
John Kariuki, a retail trader in Gikomba, lamented: “They say rates are going down, but we haven’t felt it. I took a loan at 15.5%, and the repayment is killing my profit.”
Micro, Small, and Medium Enterprises (MSMEs), which account for over 80% of Kenya’s jobs, are the hardest hit — often paying higher rates than larger corporate clients, and facing stricter loan conditions.
🧭 What’s the Way Forward?
Industry analysts say for borrowers to feel real relief, two things must happen:
- Faster Policy Transmission: The CBK may need to work more closely with commercial banks to encourage faster reflection of lower policy rates in lending products.
- Enhanced Risk Sharing: Credit guarantee schemes and fintech partnerships could help banks lend more affordably, especially to small and risky borrowers.
Meanwhile, borrowers are advised to shop around for competitive rates and consider non-traditional financing options, including digital lenders — though caution is needed, given their sometimes higher fees.
✅ Conclusion: Relief in Sight, But Not Yet in Pocket
While banks are hopeful that easing interest rates will soon bring relief, the reality for many Kenyans is still steeped in expensive credit. The challenge now is ensuring that the Central Bank’s intentions don’t stall at the top — but instead trickle down to the shopkeeper, the startup, and the everyday hustler looking for a fair shot at growth.
