CBK’s KESONIA Revolution: Transforming Loan Costs for Borrowers and Banks

This shift from the Central Bank Rate (CBR) aims to boost transparency, align with global benchmarks like SOFR and SONIA, and tie lending directly to market liquidity for faster monetary policy impact .

Existing loans transition by February 28, 2026, after a six-month adjustment .

The new formula is expected to change how lenders set interest rates for borrowers.

The model aims to bring transparency, fairness, and comparability to Kenya’s credit market.

In a media interview with NTV on Tuesday, December 3 2025, CBK governor Kamau Thugge explained how the new pricing model work.

The Central Bank of Kenya (CBK) launched a revised Risk-Based Credit Pricing Model anchored on the Kenya Shilling Overnight Interbank Average (KESONIA) .

Previously, banks relied on their individual interbank rates for lending, but the new system uses a weighted average of all overnight interbank transactions, published daily as KESONIA for greater uniformity and recognition.

This aligns Kenya with global standards like the UK’s Sterling Overnight Index Average (SONIA) and the US Secured Overnight Financing Rate (SOFR)

Key Model Components

. Formula Breakdown: Total rate = KESONIA (daily published by CBK) + “K” (covers costs, risks, shareholder returns) + fees; CBR serves as fallback.

“So, we felt that we needed to change it and make it more appropriate.

And therefore, we came up with a paper, we circulated to the public, we got a lot of comments from the banking sector, from the private sector, from international development partners. And then we came up with a new framework. So the new framework starts with the anchor of the interbank rate, which is really the cost of funds,” said the CBK Governor.”

. Transparency Rules: Banks must disclose average rates, “K” values, and charges on websites and CBK’s Total Cost of Credit portal .

. Exclusions: Fixed-rate and foreign currency loans remain unaffected.

Impacts on Kenyans

Low-risk borrowers with strong credit histories could access cheaper loans as “K” premiums reflect individual profiles, potentially expanding credit for homes, businesses, and education.

High-risk individuals face steeper rates, promoting responsible borrowing amid CBK’s rate cuts to 9.50% in August 2025.

The model responds to public complaints on opaque pricing, enabling easier comparisons and fairer access .

“Then each bank will then add a premium. And what we’re seeing is that this is a very versatile framework because it doesn’t have to be that the banks are adding a premium. They can also be reduced,” the CBK Governor explained.

“In other words, if you have a very good customer and little risk, maybe even their loan is backed by deposits in your bank, you can say your loan will be Kesonia minus one or minus two. If it’s a very high-risk person or borrower, it will be, you know, Kesonia plus three or plus four.”

Effects on Banks

Banks like KCB and Absa updated systems and pricing post-CBK pressure, curbing discretion on base rates while preserving risk-based margins .

Kenya Bankers Association welcomes expanded lending capacity to fuel growth, though initial pushback cited rate control fears .

Tighter policy transmission means quicker pass-through of CBR adjustments, benefiting banks in liquid markets.

The revised model aims to enhance transparency in lending, relate borrowing costs to the risk associated with each customer, and improve the transmission of monetary policy.

Under the new model, lending rates will be set as KESONIA plus a premium to cover costs, profits, and borrower risk.