The Central Bank of Kenya (CBK) has introduced KESONIA the Kenya Shilling Overnight Interbank Average as the new benchmark for unsecured overnight lending among Kenyan banks. While this may sound technical, KESONIA will soon play an important role in how loans, interest rates, and financial contracts are structured in Kenya.
In this blog, we’ll answer key questions about KESONIA, why it was introduced, and what it means for borrowers, banks, and the wider financial market.
What is KESONIA?
KESONIA stands for Kenya Shilling Overnight Interbank Average. It is a transaction-based benchmark rate that reflects the average interest rate at which banks lend and borrow unsecured overnight funds in Kenyan shillings.
This makes KESONIA Kenya’s official risk-free reference rate, providing a reliable measure of short-term borrowing costs in the interbank market.
Is KESONIA a New Rate?
No. KESONIA is not a new methodology it is a renaming of the existing overnight interbank average rate. The way the rate is calculated remains unchanged, and it continues to reflect actual market transactions.
Why Was the Name Changed?
The rebranding aligns Kenya with global benchmark reform practices. It brings the country in line with other major economies that have adopted clearer benchmark rates, such as:
SONIA (Sterling Overnight Index Average) in the UK
SOFR (Secured Overnight Financing Rate) in the US
This shift gives Kenya a clearer and internationally recognized identity for its reference rate.
Does KESONIA Change How the Rate Is Calculated?
No. The methodology remains the same it continues to be a volume-weighted average of overnight interbank transactions.
What is KESONIA Compounded in Arrears?
This refers to calculating interest by compounding the daily overnight rate for each day over an interest period. For example, if KESONIA is applied to a variable loan, the actual payable rate is calculated based on daily compounding.
Will KESONIA Be the Only Rate in Use?
Not entirely.
KESONIA will be used for all variable rate loans in Kenya, except for foreign currency loans and fixed-rate loans.
Where KESONIA cannot be applied, banks may continue to use the Central Bank Rate (CBR) as an alternative reference.
What if KESONIA Data Is Unavailable?
If KESONIA is not published on a given day, the fallback rate will be the Central Bank Rate (CBR). Financial contracts will provide for this contingency.
Is KESONIA a Risk-Free Rate?
Yes. KESONIA reflects overnight unsecured lending among banks, with minimal term or credit risk — making it a reliable risk-free benchmark.
Will Contracts or Systems Need to Be Updated?
Yes. Banks will need to update internal systems, documentation, pricing models, and legal agreements to reflect the KESONIA convention.
What Are the Broader Implications of KESONIA?
By adopting KESONIA, Kenya joins a global movement toward more transparent and robust benchmark frameworks. This lays the groundwork for:
New financial products linked to KESONIA
Development of term rates and derivative markets
Stronger alignment with international financial standards
Where Will KESONIA Be Published?
KESONIA will be published daily by the Central Bank of Kenya on its website and included in market data feeds and reports.
Does KESONIA Affect Existing Loans?
Yes, but with a transition period:
From September 1, 2025: All new variable rate loans will use KESONIA.
From February 28, 2026: Existing variable rate loans will shift to KESONIA, following a 6-month transition period for banks and borrowers to adjust.
Final Thoughts
KESONIA is not just a name change it’s a step forward for Kenya’s financial system. By adopting a globally recognized risk-free benchmark rate, Kenya is improving transparency, boosting investor confidence, and creating a stronger foundation for modern financial products.
For borrowers, the key takeaway is that KESONIA will gradually replace existing variable rate references. While the methodology hasn’t changed, banks and financial contracts will now align with this updated standard.
Pro Tip for Borrowers: If you currently hold or plan to take a variable rate loan, ask your bank how the transition to KESONIA will affect your repayments after September 2025.
