Annual Percentage Rate

Annual Percentage Rate or APR is the numerical representation of the Total Cost of Credit or TCC. The TCC will include the bank interest rate based on the Kenya Banks Reference Rate (KBRR) plus the premium (known as “k“). Third Party Costs directly associated with the loan are covered in the TCC disclosure; these include legal fees, insurance, valuation and government levies. Back to top


The amount of money in your bank account. Back to top

Bank Statement

A summary of transactions posted to a specific bank account. It includes debits (withdrawals) and credits (deposits). Back to top

Base Rate

The minimum rate at which a bank pays on a deposit or a loan. This rate factors in the banks cost of operations, target income, credit risk and external influences which are mainly macroeconomic factors (such as inflation).

Not all banks use the base rate pricing method, therefore in 2014 the National Treasury and Central Bank introduced the Kenya Bankers Reference Rate (or KBRR) to provide a standard calculation across the industry.

Back to top


A general term for any plastic which a customer may use to pay for goods and services or to withdraw cash. Back to top

Cash Card

A card, other than a charge card or credit card, covered by the ATM network. Back to top

Cash Machine

An automated teller machine (ATM) or free-standing machine, in which a customer can use their card for cash, information and other services. Back to top

CBR or Central Bank Rate

A monetary tool that the Central Bank of Kenya uses to signal to the market the direction in which the cost of money should go. Banks include the CBR and other factors when calculating their deposit and loan rates. Therefore the CBR is not an exclusive factor that influences rates. Back to top

Compound Interest

A calculation where accumulated interest is added back to the principle amount. Interest is then earned from the compounded amount. Back to top


A binding agreement between a bank and a customer. It should include terms and conditions of the agreement, including responsibilities of each party. Back to top

Credit Provider

An institution that extends credit to a customer. The credit can be monetary (for example a loan or credit card), it can also be service based (for example as in the cases of utilities). Back to top

Credit Reference Agencies (Bureaus)

Organisations, which hold credit information about customers, that is useful to lenders. Banks may contact these agencies for information to help them make various decisions, for example, whether or not to provide loans or credit. Banks may also give customer information to the agencies. Back to top

Credit Risk

When lending, banks assesses the various factors that affect a customer, business or industry/sector’s ability to repay the debt. Back to top

Credit Scoring

A system which rates a customer’s credit transactions and gives a score of their debt status. Banks use it to help them make decisions about whether a customer has the ability to take on additional credit given their current status. Credit scoring measures the likelihood that a customer will be in a position to repay a loan given their current debts and income. Back to top


Funds drawn out of a bank account, either through a cash withdrawal, cheque payment or any other charge to a bank account. Back to top


Credit or an advance extended by a financier to their customer on loan-based terms. Back to top


Funds paid in to a bank account, whether in cash, cheque or a funds transfer instruction. Back to top

Discontinued Account

An account which is:
  • no longer opened by customers (this could be because it has been withdrawn from sale by the bank or for some other reason); or
  • not actively marketed or promoted to customers
Back to top

Dormant Accounts

Any account in which there has been no transactions by the customer for a period of time, normally two years. Such accounts are treated differently from the normal accounts due to the inactivity. Back to top

Electronic Purses

Any card, or function of a card, which contains real value in the form of electronic money, which someone has paid for beforehand. Some cards can be reloaded with more money and can be used for a range of purposes. Back to top

Fixed Deposit Account

An account which allows a customer to receive income from the bank as long as they guarantee that their funds (deposit) will be with the bank for a negotiated period. This account typically generates better returns for the customer. There may however be penalties for terminating the contract before the maturity of the agreement. Back to top

Fixed Rate

An interest rate, which is guaranteed not to change over a set period of time. Back to top


A promise given by a person called ‘the guarantor’ to pay another person’s debts if that person does not pay them. Back to top


Money that a bank will pay for your deposit (cash) or a fee that a bank will charge to loan you money. In Islamic banking, however, interest rates do not apply.

In terms of deposits, Interest is income an account holder would generate from the bank; fixed deposit accounts generate higher interest because the bank would negotiate a tenure (term) with you and onward lend the funds based on the term they are guaranteed to hold your funds.

In terms of loans, Interest can be charged at a fixed or flexible/variable rate. Banks have various methods to calculate how much loan interest they would charge you for the loan. This charge takes into account the bank’s cost of Funds (deposits), operational costs, income requirements and the risk associated with both the customer and the economic environment.

Back to top

Islamic Banking

A system of banking or banking activity that is consistent with the principles of Islamic law (Shari’ah). In Kenya there are fully-fledged Islamic banks that solely offer Shari’ah-compliant products; and also main stream banks that provide products that are tailored to be in compliance with Islamic law. Both Muslims and non-Muslims can access Shari’ah-compliant products. Back to top

Macro-Economic Environment

Banks are influenced significantly by external factors such as a country’s rate of growth (or Gross Domestic Product/GDP), inflation levels, political stability, currency performance, employment/unemployment rates as well as fiscal and monetary policy. Back to top

Monetary Policy

The Central Bank of Kenya develops the policy for the money markets. This policy influences the cost of money and availability of money (otherwise known as liquidity). When the CBK needs to reduce the amount of money in circulation (to stem high inflation) it will make money ‘scarce’ by effecting a ‘tightening’ stance on its policy; in reverse, when it needs to stimulate growth it will ‘ease’ its policy and make money ‘cheaper’ and more accessible. Back to top


Secured loans provided exclusively for the purchase or improvement of housing, usually over a period of at least five years. In some instances, other types of loan can serve the same purpose. Back to top

Ordinary Accounts

An ordinary account will normally have the following features:
  • income can be paid by employers directly into the account;
  • cheques and cash can be paid into the account;
  • cash can be withdrawn at cash machines or counters;
  • there is no overdraft.
This account may not have a cheque book.
Back to top

Other Security Information

A selection of personal facts and information (in an order which only the customer knows), which is used for identification when using accounts. This may include a security question. Back to top

Out-of-date Cheque

A cheque, which has not been paid because the date written on the cheque is too old, normally older than six months. Back to top


A word or an access code, which the customer has chosen to allow them to use telephone or home-banking services. It is also used for identification. Back to top

PDQ Machine

A hand held devise that a retailer will use to process a Debit/Credit card transaction. Back to top

PIN (personal identification number)

A confidential number, which allows customers to authenticate their identity and access services including ATMS and other self-service systems. Back to top

POS or Point of Sale

The location where a retail transaction takes place is known as the Point of Sale. In a supermarket, the Point of Sale is the cash register. Most retail outlets have automated their cash registers and use POS machines, including PDQs. Back to top

Prudential Guidelines

A set of guidelines issued by the Central Bank of Kenya. The Guidelines include various governance and risk management requirements a bank must comply with in order to be licensed to operate in Kenya. Back to top

Reference Rate

Previously, banks used to price their loans using a “Base Rate”. The formula for calculating the Base Rate varied from bank to bank. Central Bank of Kenya has now prescribed a common Reference Rate known as the Kenya Banks Reference Rate or KBRR, which factors in CBK's monetary policy direction and the risk free rate in the market. Back to top

Retail Account

A personal account held by an individual (consumer). Back to top


An Islamic Banking term to define Interest. Islamic banking is not based on pricing money and earning interest, but it is a system of trade where goods and services are sold and capital is invested by taking risks to earn Halal profits. Interest free banking is a subset of the Islamic banking concept. Back to top

RTGS or Real Time Gross Settlement

An electronic system which local banks use to transfer or process high value payments. Cheques of value equivalent to or higher than Ksh1,000,000.00(one million) are no longer processed at the Clearing House by banks and therefore customers should request an RTGS transfer for such payments. Back to top


A word used to describe valuable items such as title deeds to property, share certificates, life policies and so on, which represent assets used as collateral for a loan. Under a secured loan, the lender has the right to sell the security if the loan is not repaid. Back to top

Stale Cheque

A cheque, which has not been paid because the date written on the cheque is too old. Cheques should be deposited for payment within a set period of time, usually six months. Back to top


An electronic system which banks use to receive payments from other countries or send payments internationally. Back to top

Total Cost of Credit

Total cost of credit refers to the total amount payable for a loan, including all fees and other charges from the lender, after deducting the original loan amount. Back to top

Unpaid Cheque

This is a cheque, which, after being deposited into the account of the person it is written out to, is returned ‘unpaid’ (bounced) by the bank whose customer issued the cheque. This leaves the person the cheque was written out to without the money in their account. A bank will charge the issuer of the unpaid cheque a penalty fee, so it is advisable to confirm the availability of funds before writing a cheque. Back to top

Wholesale Banking

Banks offer various services to individuals as well as companies. For large corporations, the bank will negotiate fees and commissions based on the volume of transactions. In this case, they would offer products and services based on a wholesale pricing model for example loans to corporate customers may be priced at below the Base Rate, in some cases. Back to top