CBK introduces KESONIA loan pricing to guide bank costs, boost transparency, and align Kenya’s banking with global standards.
The Central Bank of Kenya (CBK) has rolled out a new system that will change how banks set interest rates. From September 1, 2025, all variable-rate loans must be tied to the Kenya Shilling Overnight Interbank Average (KESONIA).
What is KESONIA?
KESONIA tracks the cost of overnight borrowing between banks. It replaces the old interbank rate but uses the same calculation method. The goal is to give borrowers clearer, more transparent loan pricing.
“KESONIA will apply to all variable-rate loans except for foreign-currency and fixed-rate facilities,” CBK said. “Where KESONIA cannot apply, the Central Bank Rate (CBR) will be used as the fallback benchmark.”
What this means for borrowers
Banks will now price loans as KESONIA + K. The “K” factor includes the lender’s funding costs, expected returns, and the borrower’s risk profile.
To make loan costs clearer, the Total Cost of Credit (TCC) will also include processing fees and other charges.
By February 2026, all existing variable-rate loans must shift to this new model. In neighbouring Rwanda, the National Bank of Rwanda tightened foreign currency rules in June 2025 to safeguard its currency amid global fluctuations.
Why the change?
The CBK says the shift brings Kenya in line with global best practice. Major markets use similar benchmarks:
It also follows a long standoff between CBK and banks. The regulator has often criticised lenders for not passing on interest-rate cuts to customers.
Transparency boost
To strengthen accountability, banks must now publish their weighted average lending rates on their websites and on the official TCC platform.
The framework was developed after input from banks, shareholders, development partners, industry associations, and individuals.
The bigger picture
For borrowers, the system promises greater clarity. But analysts warn that costs could rise slightly as banks add risk premiums. For lenders, the change reduces flexibility but helps rebuild trust in loan pricing.
The change follows years of tension between CBK and lenders, who were often accused of not passing interest-rate cuts to customers.
For related context, see our coverage on how Equity Group Holdings and Co-op Bank have navigated interest-rate policy shifts in Kenya’s banking sector.
Transparency Boost
To strengthen accountability, banks must now publish their weighted average lending rates on their websites and on the official TCC portal.
The Bigger Picture
For borrowers, KESONIA loan pricing promises clearer and fairer loan terms. Analysts, however, warn that costs could rise slightly as lenders add risk premiums. For banks, while flexibility may reduce, the new framework should help rebuild trust in Kenya’s financial sector.
