The Central Bank of Kenya (CBK) has put commercial banks on notice: stop hiding behind excuses and start lowering lending rates. At the heart of this demand is a new framework, the Kenya loan pricing model, anchored by the Kenya Shilling Overnight Interbank Average (KESONIA).

KESONIA will serve as the base reference for most variable-rate loans starting September 2025, with full adoption expected by February 2026. For borrowers weary of opaque loan agreements and inconsistent bank practices, this could mark the beginning of a more transparent era. For banks, however, the shift raises uncomfortable questions about profit margins, compliance, and how to balance shareholder returns with regulatory pressure.

The revised structure is straightforward on paper. Lending rates will be made up of:

By requiring banks to publish how these numbers add up, the CBK hopes to strip away the opacity that has long shielded lenders from scrutiny.

Kenyans have long struggled to make sense of loan contracts that list arbitrary “base rates” or sudden fee adjustments. By mandating disclosure of the full cost of credit, the CBK is trying to create a marketplace where borrowers can compare banks on an even footing.

One frustration for policymakers has been how slowly banks pass on rate cuts to customers. When the CBK cut its benchmark rate by 3.5 percentage points over the past year, lenders only reduced borrowing costs by about 2 points. Tying rates to KESONIA should make such lagging responses harder to justify.

Many advanced markets already use interbank averages like SONIA (UK) or SOFR (US) as loan benchmarks. Kenya’s adoption of KESONIA signals a push to modernize, aligning local banking practices with international standards.

The Kenya loan pricing model is not without its hurdles:

Bank executives have cautiously welcomed the clarity KESONIA brings, likening it to a “wholesale price” that provides consistency across the industry. Yet the Kenya Bankers Association has warned that too much regulatory intervention could stifle credit growth.

Meanwhile, the CBK Governor Kamau Thugge has doubled down, urging lenders to adopt the framework quickly or risk losing customers to more transparent competitors. “There should be no excuse,” he said, signaling that regulators will not tolerate half-measures.

The Kenya loan pricing model, anchored in KESONIA, is designed to bring transparency and accountability to a system that has often favored lenders over borrowers. If implemented faithfully, it could give Kenyan borrowers a fairer deal and make monetary policy more effective.

But the reality is messier. Banks may resist, borrowers may be confused, and regulators may struggle to enforce compliance consistently. The outcome depends on whether this new system becomes a tool for genuine fairness—or just another layer of financial jargon.