The Central Bank of Kenya (CBK) has removed restrictions on loan cost caps, signaling a shift toward higher interest rates for borrowers.
Equity Bank became the first institution to secure approval for revised lending rates, with unsecured loans now carrying 18% interest and small business financing ranging from 14% to 16% annually. The regulator's decision follows its 2019 removal of interest rate controls, which had previously limited lenders from adjusting rates without approval.
CBK Governor Patrick Njoroge stated that pricing would now reflect individual client risk, starting from sovereign risk assessments and incorporating sector-specific and operational factors. "We've simplified the model by consolidating fees into a single annualized rate based on reducing balances," explained Equity Bank CEO Dr. James Mwangi.
While blue-chip corporations may access rates near sovereign levels, high-risk borrowers face caps up to 16% for SMEs and 16-18% for micro, small, and medium enterprises. This marks a departure from the 13.5% average rate in 2021, with current lending averages at 12.12% as of January 2022.
The policy change comes after lenders petitioned the International Monetary Fund (IMF) over CBK's refusal to process rate adjustment applications following the 2019 deregulation.
