Two Borrowers, Two Prices: The Loan Formula Banks Are Now Using

Two customers can walk into the same bank, ask for the same sum, and walk out with different rates, and the Central Bank's own formula is why.

The revised risk-based pricing model says a variable-rate shilling loan is priced as KESONIA plus a premium the Bank calls K. KESONIA is the overnight interbank average, the rate banks charge one another for money until morning. It sits close to the Central Bank Rate. K is not one number.

It bundles the bank's own lending costs, a return for shareholders, and a charge for how risky that particular borrower looks. Fees and other charges sit on top, so the total cost of credit is KESONIA, plus K, plus the fees. Where the overnight rate is impractical, the bank may use the Central Bank Rate instead.

Foreign-currency loans and fixed-rate loans are outside this rule.

New variable loans have been on this formula since 1 September 2025. Existing ones moved across on 28 February 2026, after a six-month grace period for the banks to rewrite their systems. Governor Kamau Thugge has been explaining the same sum at the October briefing. The point he keeps making is that the policy rate is only the first line. A borrower who looks riskier pays more, even if the Central Bank has not moved.

Why 8.75 per cent is not the rate on the form

Banks charged 14.40 per cent on average in September, against a policy rate of 8.75 per cent. The gap is K, plus fees. Part of K is the cost of running a branch and chasing a late payer. Part is profit. Part is the bank's guess about whether this customer will pay.

A salaried borrower with a clean record and a trader with a thin file are not the same risk, and the model says the price should show that. The old complaint was that banks did not pass on cuts. The new complaint will be that the premium is a black box. The Bank's answer is that the formula is public. The premium for a named customer is not.

What to ask before signing

A borrower can ask which reference rate is on the form, KESONIA or the Central Bank Rate, and what sits inside K. They can ask which fees are once-off and which repeat. They cannot, from the press release alone, know whether their own premium is fair.

That comparison needs the bank's offer, in writing, against the total cost of credit sheet the model requires. A tenth-of-a-point move in the average, which is what September showed, will not change a household budget. A fat K will.