Kenyan banks have opposed a proposal by Central Bank of Kenya (CBK) to adopt the Central Bank Rate (CBR) as the sole base reference rate merged with a regulated lending premium.

Kenya Bankers Association (KBA) says the proposed framework introduces interest rate capping, which collides with current laws that advocate a liberalized interest rate regime.

In a statement, KBA argued that historical data from 2016–2019 indicated that rate caps reduce access to credit, especially for MSMEs and low-income borrowers in Kenya.

“We appreciate the Central Bank of Kenya’s continued engagement with stakeholders on credit pricing reforms,” intimated KBA spearheaded by its CEO Raimond Molenje.

The bankers added: “The proposal undermines CBK’s own monetary policy transmission by disconnecting lending rates from prevailing market conditions.”

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Instead, KBA proposes the interbank rate as a market-driven, globally aligned base rate, allowing full flexibility for banks to price risk suitably across different customer segments.

They say the model, if implemented as mooted, risks limiting banks’ ability to deliver on their pledge to advance Sh150 billion yearly in new loans to small businesses 2025-2027.

However, the banks have pledged to work with CBK to enhance credit pricing transparency, guarantee sustainable lending, and improve access by all Kenyans to affordable credit.

CBK proposes a shift from the current risk-based credit pricing model (RBCPM) to a framework where bank lending rates are underpinned to the Central Bank Rate (CBR).

CBK governor Kamau Thugge says the proposal seeks to tackle fears about high lending rates and obscure pricing models resulting in a market-driven structure for pricing credit risk.