• In April 2022, the Central Bank allowed six commercial banks to implement the risk-based pricing model on loans.
• Risk-based credit pricing is a lending model that is used to price a customer's loan based on their credit score - ability to pay back the loan.
Image: FILE
Lawyer Ahmednasir Abdullahi has termed as economic sabotage a move by a bank to charge 18 per cent interest on a mortgage.
The senior counsel was reacting to a notification from the bank to a client that it would in a month's time raise the annual interest on the loan facility from 13 per cent as a result of risk-based pricing.
"18% interest rate is sabotaging the economy. Simple," Abdullahi said.
In April 2022, the Central Bank allowed six commercial banks to implement the risk-based pricing model on loans.
Risk-based credit pricing is a lending model that is used to price a customer's loan based on their credit score - ability to pay back the loan.
Based on the model, customers with poor credit scores would acquire loans at higher interest rates and vice versa.
The pricing model applies a bank's reference rate and a margin per annum on the loan facilities.
The Kenya Bankers Association CEO Habil Olaka said in an Oped last year without disclosing the identity of the banks that the move is aimed at opening more credit channels to small and medium enterprises (SMEs).
On September 13 last year, President William Ruto said during his swearing-in that the Credit Reference Bureau (CRB) framework would be reviewed saying it had blocked many borrowers from credit access.
The president said the new framework would be one that provides borrowers with an opportunity to access credit based on their creditworthiness.
"Our starting point is to shift the CRB framework from its current practice of arbitrary, punitive, all-or-nothing blacklisting of borrowers that denies borrowers credit,” Ruto said.
On September 28, the President said lenders had agreed to adopt the new credit score system which would free four million blacklisted customers from CRB.
"Instead of saying you are in or out, we should have a credit scoring mechanism so we can have a graduated list from the least to the best so that everybody can have a chance even if you are somewhere at the bottom. You can always walk your way up as you learn the ropes,” Ruto said.