Kenyans with a poor credit history could soon face higher borrowing costs as commercial banks prepare to roll out a new risk-based loan pricing model tied to the Kenya Shilling Overnight Interbank Average (KESONIA).

According to Central Bank of Kenya (CBK) Governor Kamau Thugge, the new framework does not aim to exclude borrowers from accessing credit. However, individuals considered high-risk will pay more compared to those with strong repayment records.

Commercial banks are expected to fully transition to the model within the next three months, with all new loans priced under the framework starting December 1, 2025.

Unlike the previous risk-based credit pricing (RBCP) model introduced in 2019, which required CBK approval, the new system will only need approval from individual banks’ boards. Analysts caution that this could expose some borrowers to higher interest rates.

“If you are a very risky customer and you don’t pay your loan on time, it does not mean that you will be prevented from accessing credit. The credit will be there, but the price will be high and that will be reflected in what you are charged by the bank,” Thugge explained.

The CBK expects the standardized framework to enhance transparency and competition in the banking sector. By pegging all loans to a common base rate, borrowers will be able to compare offers across banks more easily, unlike in the past when lenders used different base rates.

“Under the new framework, we will be able to get details of the risk premium ‘K’ as the regulator. We will assess whether it makes sense both qualitatively and quantitatively, so that it is not simply used to raise rates without justification,” Thugge noted.

Banks will now be required to report their average lending rate and risk premium “K” on a monthly basis. The CBK argues that the previous framework favored banks, as lenders were quick to increase rates when market conditions worsened but slow to reduce them when economic conditions improved.

“We felt it was biased against borrowers. When rates went up, commercial banks immediately raised theirs, but when the time came to lower rates to stimulate the economy, they were reluctant to do so,” the CBK Governor said.

The regulator remains optimistic that the new model will yield fairer rates for borrowers while promoting accountability among lenders.