Kenya: CBK Rules Set the Stage for Mass Mortgage Financier

18 February 2019

Central Bank of Kenya (CBK) has published draft regulations for mortgage refinance companies (MRCs), setting the stage for creation of a State-backed firm that will advance cash to banks for on-lending to home buyers.

Through CBK (Mortgage Refinance Companies) Regulations 2019, the regulator wants non-deposit taking firms to be established under the Companies Act and licensed by the CBK to conduct mortgage refinance business.

"The regulations are intended to provide a clear framework for licensing, capital adequacy, liquidity management, corporate governance, risk management, and reporting requirements of MRCs," says the CBK.

The MRCs will be used to advance loans to primary mortgage lenders such as commercial banks, microfinance banks and saccos using funds from the capital markets so as to provide affordable mortgages to eligible individuals.

Refinance firms are being fashioned as implementation vehicles for meeting Kenya's affordable housing plan targeting 500,000 decent, affordable housing units by 2022.

The Finance Act 2018 amended CBK Act and empowered CBK to start licensing, regulation and supervision of the mortgage refinance businesses. The draft regulations for MRC are almost similar to those of commercial banks.

According to the draft, which will be subjected to public comments up to the end of the month, the minimum core capital of MRCs will be at least Sh1 billion. This is the same level as that of commercial banks.

The MRCs will be required to have master servicing and refinancing agreement, governing the lending operations between the mortgage refinance company and the participating primary mortgage lenders.

The CBK proposes that no MRC shall grant direct finance to any primary mortgage lender amounts exceeding twenty-five per cent of its core capital.

The draft regulations come at a time the Housing Fund Regulations, 2018 are also still in draft form and workers are yet to start being deducted money towards funding housing projects.

Housing PS Charles Hinga recently told Parliament that the flagship low-cost housing plan has received Sh2.613 trillion in investment pledges.

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