Why Falling Interest Rates Aren't Making Loans Easier in Kenya

The Central Bank of Kenya has cut its benchmark rate ten times in eighteen months; lending rates have fallen with it, Private-sector credit is growing again after a rare contraction. Yet for many businesses, especially outside trade and consumer lending, getting a bank loan still feels about as hard as it did when rates were at their peak.

That's because the bottleneck has shifted. In 2026, the price of money is no longer the main constraint on Kenyan credit. Risk is. CBK can make money cheaper but it can't make banks take more risk.

The lending recovery isn't evenly shared

CBK lowered the Central Bank Rate (CBR) from 13 percent in mid-2024 to 8.75 percent by February 2026. Average commercial lending rates followed, from 17.2 percent in late 2024 to 14.38 percent by June 2026. Private-sector credit growth, which had contracted 2.9 percent in January 2025, recovered to 8.1 percent by March 2026, the strongest pace in over two years.

Outstanding bank credit to real estate moved from Sh452.8 billion in April 2025 to Sh453.4 billion in April 2026, a rise of just 0.13 percent, per Daily Nation's analysis of CBK data. Total net domestic credit grew 6.34 percent over the same period. The CBR fell by more than four percentage points in that window. Real estate lending barely noticed.

Sector data on new credit explains where the growth actually went. In the year to May 2026, trade, building and construction absorbed 54 percent of all new net credit, with trade alone taking 43 percent. Household lending grew a steady 4.9 percent. Manufacturers, over the same period, were net repayers of debt rather than net borrowers.

Why a rate cut doesn't automatically mean a cheaper loan for everyone

The mechanism behind this split is a change to how banks are required to price loans in the first place. From September 2025, CBK's revised Risk-Based Credit Pricing Model replaced the CBR with KESONIA, the Kenya Shilling Overnight Interbank Average Rate, as the default reference for new variable-rate loans. On top of that reference, each bank adds its own risk premium, called "K," which it sets internally and now has to publish alongside fees and charges on CBK's Total Cost of Credit portal.

That splits the loan price into two parts that move independently. The reference rate falls when CBK cuts. The risk premium doesn't have to, and it's set bank by bank, sector by sector, borrower by borrower. A CBR cut compresses one input into the price of credit. It leaves the other, the part that actually reflects how risky a bank thinks the loan is, untouched.

Asset quality gives banks reason to keep that premium wide in the segments where the recovery hasn't reached. The sector's gross non-performing loan ratio, after easing to roughly 15.4 percent in late 2025, ticked back up to 15.6 percent by March 2026, with CBK pointing to renewed deterioration in personal and household, trade, agriculture, and manufacturing loans. That's an elevated ratio by Kenya's own historical standards, and it's the kind of number that keeps a credit committee cautious even after the policy rate has moved in the borrower's favor.

The easing cycle itself may already be running out of road. The CBR held at 8.75 percent through both the April and June 2026 MPC meetings, the first pause since the cutting cycle began, as rising oil prices and a widening current account deficit pushed inflation to 6.7 percent in May. The Kenya Bankers Association reportedly went as far as recommending a rate hike ahead of the June meeting, the first time the industry lobby has argued against further easing in this cycle. CBK's next decision lands August 11, 2026. Even if rates move again, the sector split in lending is unlikely to disappear overnight. Risk pricing has become its own, separate lever.

Where that leaves the opening for fintech

If risk pricing, not the CBR, is the effective gatekeeper of credit, the more durable opportunity in Kenyan fintech isn't another lending app.Instead,it's better proof of risk, the kind that lets a bank underwrite an SME it currently can't confidently price.

There's already a visible market responding to that gap. Licensed Digital Credit Providers had issued 7.5 million loans worth Sh133.5 billion by February 2026, per CBK figures, built largely on mobile money and transaction history rather than collateral or audited financial statements. Firms including Tala, Branch, KCB M-Pesa, and M-KOPA have grown by scoring borrowers on data banks don't traditionally use, against a Kenyan MSME financing gap that IFC and Kenya Bankers Association estimates put at roughly $17 billion.

Pending bills stood at Sh465.87 billion as of March 2026, pushing many suppliers toward invoice and local purchase order (LPO) financing as a working-capital bridge built around verified cash flow rather than traditional collateral.

The pattern in the sector data supports a narrower claim than "banks lend where the data is better." Trade and household borrowers also tend to have shorter repayment cycles, more predictable cash flows, and collateral banks already know how to price. What the data does support is that banks are far more willing to lend where cash flows and repayment risk are easier to assess, and far more reluctant where they aren't, regardless of what the CBR is doing. Closing that assessment gap, in real estate, manufacturing, and the wider SME base outside trade, is the real product opportunity sitting inside this story.

In a market where capital is gradually becoming cheaper but trust remains expensive, better underwriting may be the most valuable financial product of all. The next generation of Kenyan fintech will win by measuring risk better than the banks currently can.