As Kenya continues to undertake various reforms in its financial markets, there is need to embrace transparency, collaboration and discipline among all the players involved, leading credit agency opines
In Kenya’s dynamic financial landscape, a quiet revolution is underway, one that could redefine how institutions lend, borrow and attract investment. At the heart of this transformation is the Kenya Shilling Overnight Interbank Average (KESONIA), a newly introduced benchmark rate designed to make the country’s debt market more transparent and efficient.
During a recent media session in Nairobi, Agusto & Co ; one of Africa’s well known credit rating agencies, outlined how this new rate and a stronger credit rating culture could help position Kenya as a financial powerhouse in the region. Mrs. Yinka Adelekan, the Group CEO of the firm described KESONIA as a transformative step that aligns Kenya’s financial system with the international standards observed in mature markets like the United States and the United Kingdom . “KESONIA introduces transparency and fairness by aligning Kenya’s financial market with the global best practices. It reflects the real cost of borrowing and brings discipline into the debt market,” she noted.
According to her, the move will not only improve the market’s liquidity, but it will also give investors greater confidence in the country’s financial markets.
Transparency and Discipline in the debt market
Despite these promising reforms, Agusto & Co believes Kenya’s financial markets face a critical gap; the absence of a robust credit rating culture. In many developed and emerging economies, credit rating serves as a universal language of trust between lenders and borrowers. It provides a clear picture of an institution‘s creditworthiness, helping investors to make informed decisions and borrowers to access fair interest rates. In Kenya, however, the practice of using credit rating as a pricing benchmark remains limited.
“The challenge we see is how banks determine their credit risk premium in absence of standardized rating culture” Mrs. Yinka explained. “Without consistent data or ratings, pricing becomes a matter of perception rather than analysis ,” she added . In Kenya, banks often rely on collateral rather than the actual creditworthiness of borrowers, which restrains access to credit for small and medium enterprises ( SMEs) and innovative sectors such as agriculture and information technology ( IT).
To fix this, Agusto & Co recommends that banks adopt internal credit scoring systems while working closely with credit agencies to validate their assessment. Such collaboration will create a more balanced and data- driven financial environment, fostering accountability and transparency.
How credit rating agencies add value
Credit rating agencies play a vital role in strengthening financial markets by offering evaluations of creditworthiness. Their assessments help investors to understand the level of risk attached to a borrower or financial instrument, ensuring that interest rates and returns reflect the real market conditions.
By standardizing how credit risk is measured, rating lowers information asymmetry, supporting secondary market trading and helping price instruments efficiently. This builds market confidence, expands the investor base and reduces the overall cost of capital, which are key ingredients for a vibrant and liquid debt market.
Regulatory alignment: making ratings matter
Agusto & Co also highlighted that Kenya’s future growth cannot solely rely on banks’ financing. As much as they play a vital role in enhancing socio-economic development , their lending is often limited to short- term facilities. Long-term funding can only be sustainably sourced through a vibrant debt market. “Banks cannot effectively provide loans with a tenure of fifteen to twenty five years. That kind of funding should come from capital markets, where pension schemes and other long-term investors are willing to provide funding ,” the Group CEO noted.
She cited Nigeria as a case study, where the debt market has grown to be five times the size of the equities market. This expansion, driven by domestic investors and supported by national rating agencies, has enabled large-scaling financing of development without over reliance on foreign debt. For Kenya, similar growth is possible if the market embraces local rating institutions and leveraging the strength of domestic capital.
Technology, data and future ratings
As technology continues to reshape global finance, Agusto & Co believes that innovation will enhance the accuracy and relevance of credit assessment. The firm uses both quantitative and qualitative analysis, besides being supported by data analytics to assess institutions holistically.
While artificial intelligence (AI) helps in data gathering, Mrs Yinka stressed that human expertise remains central to interpreting qualitative factors like management, quality governance and market reputation.
A unified path towards market governance
In closing, the firm emphasized that Kenya’s financial reforms including KESONIA, credit ratings and credit guarantees must work together to create a stronger, more transparent market. None of these entities can thrive in isolation. They support each other in building investor confidence, improving transparency and ensuring long-term stability.
Transparency, discipline and collaboration are the pillars of a strong financial system. By nurturing a credit-conscious culture, Kenya can attract both domestic and international investors and unlock its full economic potential.
