CBK Governor Kamau Thugge.The Central Bank of Kenya has introduced a new risk-based credit pricing model known as the Kenya Shilling Overnight Interbank Average [KESONIA] as part of its strategy to modernise the country’s benchmark interest rate framework.
KESONIA is a transaction-based benchmark rate that reflects the average interest rate at which banks in Kenya lend and borrow unsecured overnight funds in Kenyan Shillings.
The overnight interbank rate has been identified as the ideal foundation for developing Kenya’s Risk-Free Rate.
CBK is the administrator of KESONIA and is responsible for its governance and publication every business day.
The bank began publishing KESONIA alongside the KESONIA Compounded Index on September 1, 2025.
According to the CBK, the shift to a risk-free rate is intended to enhance transparency, reliability and market confidence in domestic financial markets while strengthening monetary policy transmission and aligning the country with international best practices and standards.
“The new framework starts with the anchor of the interbank rate, which really is the cost of funds. Each bank will then add a premium,” explained CBK Governor Kamau Thugge.
He said the model allows flexibility depending on the risk profile of the borrower.
“This is a very versatile framework because it doesn’t have to be that the banks are adding a premium; they can also be reducing," he said.
"If you have a very good customer and not very much risk, maybe their loan is backed by deposits in your bank, you can decide to say your loan will be KESONIA minus 1 or minus 2. If it’s a very high-risk borrower, it will be KESONIA plus three or plus four.”
How is KESONIA calculated?
- At the end of each business day, CBK obtains data on banks’ overnight interbank transactions.
- The data is validated for credibility and accuracy to ensure it reflects actual trading activity.
- CBK then calculates KESONIA and the KESONIA Compounded Index.
- The results are published by 9 am on the next business day for rates applicable to the previous day.
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On weekends and public holidays, the KESONIA rate remains constant from the last working day.
How does it affect borrowers?
At present, the Central Bank Rate stands at 9.50 per cent, while CBK pegged KESONIA at 9.5419 per cent at the close of business on September 2, 2025.
Traditionally, banks have offered credit at a rate higher than the CBR, combining a base rate—likely derived from KESONIA or the Kenya Banks’ Reference Rate, which incorporates the CBR—with a customer-specific risk premium and associated fees.
The final lending rate varies depending on the borrower’s individual credit risk as determined by their credit reference bureau report and the type of loan sought.
Governor Thugge underscored the transparency of the new framework.
“The beauty with this new framework is the transparency it brings to the system because every Kenyan knows that if they go to any bank, they will have the same common interest rate,” he said.
