A significant transformation of Kenya’s lending landscape is underway as major banks begin transitioning to a new Risk-Based Credit Pricing Model (RBCPM) starting December 1, 2025, fundamentally altering how interest rates are calculated for millions of borrowers .

The revised framework, mandated by the Central Bank of Kenya (CBK), shifts lending from primarily bank-determined rates to a more transparent system where individual borrower risk profiles directly influence interest rates. This marks the most substantial change to loan pricing in recent years, aimed at strengthening monetary policy transmission and enhancing transparency in borrowing costs.

Key Changes in the New System

Under the new model, variable-rate loans in Kenyan Shillings will be priced using the Kenya Shilling Overnight Interbank Average (KESONIA) plus a customer-specific premium known as “K” . KESONIA represents the average rate at which banks lend to each other overnight, replacing the Central Bank Rate (CBR) as the primary benchmark for most loans.

The “K” premium incorporates a bank’s operating costs, return to shareholders, and crucially, the individual borrower’s risk profile. This means customers with strong credit histories, stable incomes, and consistent repayment records will qualify for lower premiums, while those with checkered credit histories will face higher borrowing costs.

Bank Compliance and Timeline

Leading financial institutions are now implementing this change after CBK pressure to meet year-end compliance deadlines. KCB Bank became the first major bank to announce its transition, followed shortly by Absa Bank Kenya, with both instituting the new pricing for all new variable-rate loans from December 1, 2025 .

Diamond Trust Bank (DTB) has also confirmed its compliance with the CBK directive, committing to the same implementation timeline. According to the Kenya Bankers Association, the transition will continue through February 28, 2026, when all existing variable-rate loans must migrate to the revised model.

What This Means for Borrowers

For the average Kenyan, the new system introduces both opportunities and challenges:

Personalized Interest Rates: Your financial behavior now directly determines your borrowing costs. “Your personal financial behavior now plays a much bigger role in determining how much you pay,” explains one analysis of KCB’s new system.

Transparency Requirements: Banks must fully disclose all applicable fees, charges, and the total cost of credit, making loan comparisons easier.

Financial Planning Impact: Since KESONIA is a daily market rate, interest rates on variable-rate loans may fluctuate more frequently, introducing new uncertainty for financial planning.

Regulatory Context and Economic Goals

The transition comes amid ongoing monetary easing by the CBK, which has cut its benchmark rate eight times since last year, with the most recent reduction bringing the Central Bank Rate to 9.25% . Governor Kamau Thugge has previously expressed frustration that banks were quick to raise borrowing costs during tightening cycles but slow to lower them during easing periods.

The RBCPM framework is designed to address this asymmetry by strengthening the transmission of monetary policy changes to borrowers.

As the Kenya Bankers Association noted, the change will “strengthen the transmission of monetary policy decisions, ensuring that changes in the policy rate are more directly and efficiently reflected in the cost of credit across the banking sector”.

Industry Reaction and Outlook

The banking industry has pledged support for the new framework. Raimond Molenje, Chief Executive Officer of the Kenya Bankers Association, committed to “fully support the implementation of the new framework, not only as a compliance requirement but also as an enabler of our collective ambition to expand access to credit for both individuals and businesses”.

Banking analysts suggest that the successful implementation of this model could expand credit access to previously underserved segments, including MSMEs, youth, and women-led enterprises, by rewarding strong credit profiles with more favorable rates.

As December 1 approaches, Kenyan borrowers are advised to review their credit histories and understand their risk profiles, as their financial past will now directly shape their borrowing future in a banking landscape where trustworthiness matters more than ever before.