An adjustment to the Central Bank of Kenya benchmark rate also known as the Central Bank Rate (CBR), a tool that provides a signal to guide how commercial banks charge customers for loans, has a significant effect on the way SACCOs do their lending business.
“If commercial banks lower their lending rates below those offered by SACCOs- as a result of adjustments in the CBR, this will automatically affect how these SACCOs lend to their members.
If there are people who had the intention of getting out of the banks to the SACCOs due to interest rates, they will not be able to shift because the banks are offering more favourable rates. Saccos that give loans at higher rates than those offered by the banks will also be affected,” said Patrick Njenga, Chief Executive Officer, Tower DT SACCO Limited.
He told SACCO Review that in the event that banks offer cheaper loans compared to those offered by SACCOs, it is quite likely that members will opt for bank loans and abandon plans to borrow from their SACCOs.
Interestingly, while the CBK has been keen to lower interest rates offered by banks, these lenders have been reluctant to offer cheaper unsecured loans to their customers, preferring to buy safer treasury bills and bonds as well as such financial instruments as the more lucrative infrastructure bonds that the Government is auctioning.
“Banks prefer investing in fixed income securities rather than offer cheaper unsecured loans to the riskier individual borrowers. Lending to individuals has enormous risk elements while investing in infrastructure, treasury and corporate bonds has none. With a high demand for cheaper bank loans and banks not lending to individuals, this will automatically lead to a rise in bank interest rates,” said Patrick.
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Financial experts maintain that while the CBK has been pushing banks to lower their lending rates, through a reduction in the CBR now at 9.75% from 10% two months ago, banks have been reluctant to move their lending rates lower, in tandem with the CBR downward adjustment.
Available data indicates that indigenous SACCO loan products are now attracting an average interest rate of 12%. But SACCOs also have loan products that are offered at rates upwards of 15-18%, on reducing balance.
With a base lending rate of 9.75%, Banks have to put a mark-up of 1.25% to match what SACCOs are offering.
“So if banks were to lower their base lending rates, based on the CBR signals- a situation that is doubtful given the conditions in the credit market, then SACCOs will be adversely affected, “said Patrick.
An ease in the monetary policy stance by the Central Bank of Kenya (CBK) signaled by a reduction in the Central Bank Rate (CBR) has minimal effect on how SACCOs do their lending business, according to a cross section of senior SACCO Executives who spoke to this publication.
“Even with a reduction in the CBR, Banks still have to put their mark up before fixing their own rates when lending to customers. Members of SACCOs know that the CBR and bank lending rates are not fixed and will keep on fluctuating. So any reduction in the CBR will not trigger a significant shift of loan seekers from SACCOs to banks.” Patrrick said
“How low a bank can charge on their loan products also depends on their source of funding, which means there is a limit below which banks can lower their rates. SACCOs fixed their lending rates with no fluctuations, giving members more certainty and stability unlike customers with bank loans, “said Joseph Njoroge, CEO QONA DT SACCO formerly Safaricom DT SACCO.
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He, however, admits that SACCOs that borrow from the banks for onward lending to members, will benefit from lower interest rates on bank loans.
“SACCOs operate a fixed interest regime and thus not affected with what happens with bank lending rates, which are usually flexible and change as per the Central Bank of Kenya monetary policy tools,” said Njoroge.
During its Monetary Policy Committee (MPC) Meeting held on June 10th 2025, the Central; Bank of Kenya (CBK) top decision-making think tank concluded that there was scope for a further easing of the monetary policy stance to augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity, while ensuring inflationary expectations remain firmly anchored, and the exchange rate remains stable.
Therefore, the Committee decided to lower the Central Bank Rate (CBR) by 25 basis points to 9.75 percent from 10.00 percent.
A reduction in the Central Bank Rate (CBR) can affect SACCOs, though the impact may not be as direct as with commercial banks. SACCOs, especially deposit-taking ones, may see changes in their lending rates, borrowing costs, and overall financial performance due to the CBR’s influence on the broader financial market.
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While SACCOs are not directly regulated by the CBR in the same way as commercial banks, the CBR’s changes can influence the cost of borrowing for SACCOs from other financial institutions.
If commercial banks lower their lending rates due to a CBR reduction, SACCOs might need to adjust their rates to remain competitive.
Changes in lending rates can affect SACCOs’ profitability, as it impacts the interest they earn on loans.
If a SACCO borrows from other financial institutions, a CBR reduction could lower the cost of that borrowing.
The CBR influences the overall cost of funds in the market, which can affect a SACCO’s ability to offer competitive interest rates on deposits and loans.
While the impact may not be immediate or direct, a reduction in the CBR can still influence SACCOs’ operations, potentially affecting their lending rates, borrowing costs, and overall financial performance.
By Jackson Okoth
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