5 April 2018

Kenya: Treasury Sets Up Financier for Kenyatta's Low-Cost Home Loans Plan

The Treasury Wednesday announced that it was teaming up with the private sector to establish a wholesale company that will finance commercial banks and saccos to enable them disburse affordable home loans to low-income earners.

The new entity, to be known as the Kenya Mortgage Refinance Company (KMRC), will be incorporated by end of this month and will start raising capital ahead of its launch in mid-February next year.

"The National Treasury is supporting the affordable housing agenda by facilitating the creation of a mortgage liquidity facility --the Kenya Mortgage Refinance Company (KMRC)," Treasury secretary Henry Rotich said yesterday at a meeting to brief heads of banks and saccos.

Principal shareholders

Official documents say the Treasury, commercial banks, international financial institutions, nonbank financial institutions and saccos are expected to be on the list of KMRC's principal shareholders. KMRC will regularly issue bonds to finance its operations, Mr Rotich said.

Under the arrangement, KMRC will advance money to mortgage companies and institutions financing housing on a wholesale basis for on-lending to members or account holders to buy or build homes.

The scheme will specifically target those whose incomes cannot currently allow them to take home loans from financial institutions.

"The primary objective of KMRC is to operate as a private sector-driven company with the purpose of developing the primary and secondary mortgage markets through the provision of secure, long-term funding to the mortgage lenders, thereby increasing the availability and affordability of mortgage loans to Kenyans," said Mr Rotich.

It is expected that the programme will enable banks and saccos to issue 50,000 additional mortgages in five years. Kenya's total mortgage loans book stood at 24,085 in December 2016, having grown by a paltry 6,000 in the past five years.

KMRC is being established as an implementing arm of President Uhuru Kenyatta's Big Four Agenda, which seeks to achieve universal health coverage, create more jobs through a revival of the manufacturing sector, ensure food security and increase home ownership.

Wholesale market

Mr Rotich said KMRC will help mortgage lenders to establish a wholesale secondary mortgage market, which means that the banks will be able to sell existing mortgages to the entity in return for liquidity.

"Based on international experience, such facilities are owned by banks or institutions that use it for refinancing. Having the saccos on board should broaden the reach of housing finance to borrowers with low and informal incomes and increase the number of loans originated," he said.

Official documents show that the Treasury will provide the initial Sh1.5 billion capital to set up the company and then open it up to more equity investors for enhanced capitalisation.

"As we target having the company fully incorporated by end of April, we are also engaging a consultant to develop a detailed business plan which will enable potential shareholders to assess it and make informed investment decisions," said Mr Rotich.

The move is expected to address the long-standing shortage of long-term funds for projects with long maturity periods.

Asset-liability mismatch

A key challenge has been the asset-liability mismatch that arises from financiers taking short-term funds from depositors to finance long-term projects.

"KMRC is meant to offer the housing finance market a credible, professional and high quality large-scale medium- to long-term refinance/liquidity. This type of institution has proven to be an important factor in the launch, growth and success of mortgage finance markets in other emerging countries," the document says.

The new plan is also intended to bring more fixed-rate mortgages compared to the current trend where variable interest mortgages are the norm.

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