The Kenya Bankers Association (KBA) has cautioned borrowers that loan defaulters will face higher interest rates under the Central Bank of Kenya’s (CBK) newly revised risk-based credit pricing model.
In a statement released on Wednesday, September 4, 2025, KBA explained that borrowers who default on loans will not be locked out of accessing future credit. However, they will only qualify for loans at steeper rates, reflecting the risk tied to their poor repayment history.
“If you borrow and default, you will still be able to get loans, but at a higher interest rate because of the risk from your past borrowing history. This means keeping a good loan repayment record will help you get cheaper loans,” the association said.
The CBK introduced the new formula on August 26, 2025, aiming to make interest rate determination more transparent and borrower-friendly. The framework requires banks to disclose all the elements that make up interest rates, giving customers a clearer picture of how their credit behavior influences loan costs.
Boosting Credit Access for More Kenyans
According to KBA, the revised model will expand access to credit for groups that have long struggled to secure financing. These include micro, small, and medium enterprises (MSMEs), youth, women-led businesses, and persons with disabilities. By integrating credit history into loan pricing, banks can now serve a wider customer base without bearing excessive risks.
KBA also noted that the model will improve the transmission of monetary policy, ensuring that any adjustments to CBK’s policy rate are reflected more quickly and effectively in lending rates across the banking sector.
Why Loan Repayment Matters
The association emphasized that maintaining a strong repayment record is key to accessing affordable credit. Borrowers who pay on time will continue to enjoy lower interest rates, while defaulters will face penalties through higher borrowing costs.
KBA added that the reforms will strengthen Kenya’s financial sector, support businesses, and fuel sustainable economic growth.
