Loan Defaulters to Pay Higher Interest Rates as CBK’s New Credit Rules Take Effect
KBA warns borrowers who don’t service loans as CBK implements new risk-based credit pricing model
KBA has issued a warning to borrowers who fail to service their loans following the implementation of the Central Bank of Kenya’s (CBK) updated risk-based credit pricing model.
In a statement issued on Wednesday, September 4, 2025, KBA said defaulting will not automatically lock out borrowers from getting future loans but they will be charged higher interest rates compared to those who maintain a clean repayment record.
“If you borrow and default, you will still get loans but at a higher interest rate because of the risk from your past borrowing history. So keep a good loan repayment record and you will get cheaper loans,” the association noted.
The new directive comes after CBK revised the loan pricing formula which requires commercial banks to align lending rates to customer risk profiles. KBA says the move is to promote wider access to bank credit and support Kenya’s long term economic growth.
“The banking industry welcomes the revised loan pricing formula for variable interest rates announced by the Central Bank of Kenya (CBK) on August 26, 2025. The change will allow greater access to bank credit for individuals and businesses, enhance the banking sector’s ability to support Kenya’s growth,” the statement read.
KBA also noted that the framework will be more transparent as banks will now be required to break down all the components that make up interest rates. This will give borrowers a clear picture of how their loan costs are calculated.
Another key feature of the model is credit history. Past repayment behaviour will now weigh heavily on how much interest a borrower pays, so responsible borrowing is key.
The bankers said the new rules will particularly benefit marginalized groups such as small and medium enterprises (SMEs), women led businesses, persons with disabilities and young entrepreneurs who have often struggled to access affordable financing.
Additionally the model will strengthen the link between CBK’s monetary policy decisions and the cost of credit so that interest rate changes are more effectively transmitted across the financial sector.
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Loan Defaulters to Pay Higher Interest Rates as CBK’s New Credit Rules Take Effect