The Central Bank of Kenya’s (CBK) introduction of the Kenya Shilling Overnight Interbank Average (Kesonia) as the new reference rate for variable-interest loans marks a pivotal moment for Kenya’s financial markets.
From 1 September 2025, all variable-rate loans have been priced as ‘Kesonia + K’, where K represents a margin based on the borrower’s risk profile, administrative costs, and other factors. By February 28, 2026 all existing variable-rate loans are expected to transition to this new structure.
For the first time, Kenya’s lending rates will be anchored to a transparent, market-determined benchmark that reflects the real cost of liquidity in the interbank market. Why CBK’s new loan model long overdueThis means that changes in monetary policy, whether tightening or easing, will now be transmitted swiftly and predictably through the financial system. In many ways, it represents Kenya’s most meaningful step yet toward establishing a market-based anchor for credit pricing.
However, the success of Kesonia will depend on how effectively the broader financial ecosystem supports it. For this new benchmark to achieve its full potential, Kenya must strengthen competition in the banking sector, enhance transparency, and improve credit information systems.
Borrowers should be able to move their loans between banks with ease, enabling them to benefit from more competitive pricing. Yet, today, the process remains cumbersome, particularly for loans secured by property.
The slow and often costly process of transferring property charges is a major obstacle to loan portability. Digitising the land registry would make it easier, cheaper and faster for borrowers to switch lender, driving greater competition and ensuring that rate changes are quickly passed on.
Transparency will also be critical. Every bank should clearly disclose both the prevailing Kesonia rate and the specific margin applied to each loan.
Borrowers deserve to know what drives their borrowing costs and to compare offers across lenders on an equal footing. Such openness would foster accountability and trust, two elements that have been missing in Kenya’s credit market for too long.
Equally important is the need to link pricing to credit ratings. Kenya’s financial system must evolve toward a model where individuals and SMEs can influence their borrowing costs through their own credit behaviour.
A borrower with a strong repayment history should enjoy a smaller margin, while higher-risk borrowers should pay more. This approach would reward financial discipline and provide a data-driven framework for lenders to assess and price risk fairly.
Kesonia also aligns Kenya with international best practice. Around the world, markets have shifted away from administratively set benchmarks toward transaction-based reference rates. Adoption of Kesonia places it firmly within that modern framework, where monetary policy is guided by real market signals rather than administrative directives.
The real challenge now lies in execution. Banks must embrace transparency and healthy competition. Borrowers must be empowered to understand and question the pricing of their loans. Regulators, in turn, must strengthen credit information systems, enforce disclosure standards, and maintain oversight to ensure that the spirit of reform is not lost.
If these elements align, Kesonia could finally deliver what the CBR never quite achieved, a clear, efficient, and predictable channel for monetary policy transmission, that benefits both lenders and borrowers. It would also restore confidence in the power of monetary policy as a genuine lever of economic stability.
Ultimately, this reform is more than a shift in interest rate calculation. It represents a cultural change, one that redefines how Kenya prices risk, rewards financial discipline, and ensures that CBK decisions are finally felt where they matter most: at the borrower’s desk.