Paul Arithi 
Raimond Molenje,CEO,Kenya Bankers Association (KBA).
Kenya Bankers Association (KBA) rejects CBK’s plan to link loan rates to the CBR and a fixed premium, warning it signals a return to interest rate controls.
The association in a statement said the proposed framework introduces interest rate capping, which is inconsistent with existing laws that uphold a liberalized interest rate regime.
“The proposed interest rate capping by CBK is not supported in law and would have the following effect: reduced lending to Kenyans and businesses, especially MSMEs,” KBA said.
KBA said that historical evidence from 2016-2019 shows that rate caps reduce access to credit, particularly for MSMEs and low-income borrowers.
“We appreciate the Central Bank of Kenya’s (CBK) continued engagement with stakeholders on credit pricing reforms,” KBA said.
Raimond Molenje ,KBA CEO, said that the premium ‘K’ should reflect a bank’s actual cost of lending.
“Beyond the base rate, ‘K’ should be allowed to fully reflect banks’ risks, expected return on investment, and customer risk,” Molenje said.
KBA also criticized CBK for abandoning the interbank market corridor as a monetary policy tool, noting that this change would weaken the transmission of policy signals and increase volatility in credit markets.
“In its proposal, CBK is silent on the interbank market corridor as the monetary policy implementation framework ignoring the interbank rate sets the stage for more frequent misalignments of CBR being mismatched with market conditions,” read part of the statement.
The association noted that the capped model would make it difficult for banks to lend during times of market stress or tight liquidity, thus disrupting the flow of funds to businesses and households.
“Fixing the premium ‘K’ for each customer is unworkable in the current operating environment,” Molenje noted.
KBA proposed the use of interbank rates as the base reference rate, stating that they are more market-aligned and reflect real-time liquidity conditions.
“Global best practice shows that market-based rates are derived from short-term interbank markets such as SOFR (U.S.), SONIA (UK), and EURIBOR (EU) rates,” KBA said in a statement.
By rejecting CBK’s model, KBA insists it is not opposed to risk-based pricing, but it calls for a framework that reflects market dynamics.
“The banking industry is ready to engage and work with CBK on developing a framework that will ensure flexible and affordable credit flow to Kenyans,” KBA emphasized.
KBA noted that if implemented as proposed, the model risks curtailing banks’ ability to deliver on their commitment of advancing sh 150 billion annually in new loans to small businesses between 2025 and 2027.
