Getting a loan in Kenya has become a bit of a gamble for many, especially for small business owners, first-time borrowers, or anyone without a lengthy credit history. Interest rates can vary wildly, and most borrowers are left wondering, “Why am I being charged so much?”
Well, the Central Bank of Kenya (CBK) wants to change that.
In a newly released proposal, CBK is pushing to move away from the current risk-based loan pricing system and bring back a model that pegs lending rates directly to the Central Bank Rate (CBR). The goal? More transparency, more fairness, and more predictability for borrowers across the board.
What Is CBK Proposing?
Right now, banks use a risk-based pricing model introduced in 2019. That means they set your loan interest based on how risky they think you are, your income, history, business type, etc. While this was supposed to promote responsible lending, it’s been anything but clear.
“It feels like banks just slap a number on your loan and that’s it. You don’t know where it came from,” says Ruth, an SME owner in Nakuru.
CBK now wants to simplify things by anchoring loan rates to the Central Bank Rate (CBR), the benchmark interest rate CBK uses to guide monetary policy.
Here’s how it would work:
- Your loan rate = CBR + “K”
- “K” is a fixed premium that would include the bank’s operating costs, profit margin, and your risk profile.
- Every bank’s “K” would be publicly listed so you can see exactly what you’re being charged, and why.
What This Means for You
- More Transparency
CBK plans to publish the breakdown of every bank’s lending rates on its website, on the Total Cost of Credit (TCC) portal, and even in newspapers. Borrowers will no longer have to guess how their rates were calculated.
“You’ll finally be able to compare banks side by side and make informed decisions,” explains financial analyst Samuel Kariuki.
- More Predictability
Because loan rates will be tied to the CBR, any changes in CBK policy, like reducing or increasing the base rate, will directly influence your loan. That means more responsive and predictable adjustments.
- More Access for More People
Under the current model, many Kenyans, especially those in the informal sector, get priced out or denied loans entirely because they’re considered “high risk.”
The new model seeks to level the playing field, especially for SMEs and youth entrepreneurs who’ve long struggled to access fair credit.
“This could finally make financing more inclusive,” says Carol, who runs a small tailoring business in Embu. “We’ve been paying crazy rates or relying on shylocks.”
Why the Change?
Since 2019, risk-based pricing has faced growing criticism for being:
- Opaque – Most borrowers have no idea how their rate was set.
- Exclusionary – It locks out borrowers without extensive credit histories.
- Unresponsive – It doesn’t reflect shifts in monetary policy as fast as it should.
CBK is now saying: Let’s fix that. Let’s bring loan pricing back to a model everyone can understand.
So, What Happens Now?
CBK has released a consultative paper detailing its proposal and is inviting feedback from the public, banks, and other stakeholders. You can share your thoughts before May 2, 2025.
