Abstract

Learning Outcomes

This case can be used to teach students the adoption of a risk-based pricing model for loans in an emerging market. Upon completion of the case study discussion, the students will be able to understand the economic impact of implementing interest rate caps, describes the risk-based pricing model, understand the different methods of pricing money, demonstrate the challenges faced in the adoption of the risk-based pricing model and justify alternative solutions to challenges faced in adopting a risk-based pricing model.

Case Synopsis

In the aftermath of the failure of the implementation of the interest rate cap regime in Kenya, the Equity Bank was among the first commercial banks to get approval to adopt risk-based pricing from the Central Bank of Kenya in December 2022. The bank successfully implemented the model in January 2023. Among the first commercial banks to adopt the risk-based model, Equity Bank Kenya was the benchmark used by the other Tier 1 banks. This was the first time a risk-based pricing model was adopted in Kenya. The case study documents the risk-based pricing model adopted by the EBK, the challenges faced, and the bank's financial performance under the new regime. This case invites students to find a solution for EBK, facing an increase in non-performing loans and a decline in profitability in light of adopting the risk-based pricing model.

Complexity/ Academic level

This case is appropriate for an undergraduate or graduate-level program in Finance and Financial Services to illustrate how commercial banks adopt the risk-based loan-pricing model, the challenges faced, and other alternative solutions to increase access to credit and shareholder value.

Supplementary Materials

Teaching notes are available only to educators upon request from the Case Centre at cases@strathmore.edu

Keywords

Risk-based pricing model; interest rate caps; commercial banks; demand for credit; supply for credit; financial performance

Citation

Ngaruiya, J. (2025). Equity Bank Limited: Implementing Risk-Based Lending. Strathmore Africa Case Center. https://doi.org/10.70268/sacc-04-25-58

Publisher: Strathmore Africa Case Centre

Copyright © 2025, Strathmore Africa Case Centre

Category : Case

Author : Jane Ngaruiya

Publisher : Strathmore University

Document ID : SACC-04-25-58