•The decision to use a pricing model to determine the worthiness of credit is a shift away from negative listings of defaulters.
•The lender on the of 24 November 2022, effectively rolled out a risk-based pricing mechanism
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Equity Bank has deployed the risk-based pricing model in a move it says will cushion Kenyans from high interest rates.
The lender in a notice to its customers on Tuesday said the roll out follows Central Bank of Kenya's approval.
Under risk based lending, the bank is allowed to load a premium to cover lending to customers deemed riskier.
This according to Equity will avail credit to small businesses and individuals, who have been struggling to access formal credit.
The bank said the prevailing drought across the country, and the general performance of the economy have contributed to an unprecedented rise in interest rates translating to increased cost of doing business.
“We have endeavoured to cushion members by maintaining the prevailing interest rates despite the challenges highlighted," Equity said.
It however said the foregoing market conditions having persisted longer than anticipated, the bank has had to roll out Risk-Based Pricing to align to the prevailing economic conditions.
This is a shift from negative listings of defaulters to a new system of credit score rating that does not deny borrowers credit on the strength of their credit bureau reference scores.
In the new model the interest rate shall be arrived at by using Equity Bank's Reference Rate (EBRR) plus a margin based on the risk profile of the customer.
“Consequently, the final Interest Rate shall be Equity Bank's Reference Rate (currently at 12.52%) plus a margin per annum. This mechanism shall apply to all new Kenya Shilling denominated credit facilities,” the lender said.
It however maintained that it shall continue to assess the market and advise accordingly in case of any further changes.
In September, President William Ruto directed the CBK to abolish the blacklisting of borrowers and instead have a scoring method for customers based on their
The president said the aim is to shift away from negative listings of defaulters to a new system of credit score rating that does not deny borrowers credit.
Six banks have received approvals for risk-based lending but only Equity Bank has come to say it secured CBK's clearance.