The Central Bank of Kenya (CBK) has proposed a shift from the current risk-based pricing model (RBCPM) to a lending rate model anchored on the Central Bank Rate (CBR).
This proposal is detailed in a CBK consultative paper seeking public input on the RBCPM review.
The initiative responds to concerns that some banks have inconsistently applied the RBCPM since its 2019 introduction.
“There are lingering concerns regarding the availability, quality, and fairness of the credit scoring data underpinning the model, as well as consistency of RBCPM application across commercial banks. These issues have significant implications for maintaining the integrity of the model and ensuring that it aligns with global best practices as envisioned during its establishment,” says the CBK.
CBK onsite inspections identified instances of banks levying extra fees, failing to routinely update RBCPM variables, and using customer segmentation instead of individual risk for pricing.
To address these issues and improve lending transparency, the CBK aims to base loan prices on the CBR plus a bank-specific premium (“K”) for costs and risks. The CBK intends to publicise the components of each bank’s premium.
CBK seeks comments from commercial banks and the public on the proposed common reference rate and computation of banks’ lending rates by Friday, May 2, 2025.
