The World Bank has approved a Sh25 billion loan for Kenyans who are unable to access affordable housing finance.
The loan is expected to provide a silver lining for the Jubilee government's Affordable Housing project, which has been rocked by controversy due to poor public buy-in.
The lender said on Wednesday that the Kenya Affordable Housing Finance Project (KAHFP) will support the establishment and operationalisation of the Kenya Mortgage Refinance Corporation (KMRC), a largely private sector-owned and non-deposit taking financial institution supervised by the Central Bank of Kenya (CBK).
The private sector own 80 per cent of KMRC while the remaining 20 per cent is for the National Treasury.
Besides the World Bank investments, about 20 banks and savings and credit cooperative societies (saccos) have contributed capital so far.
KMRC intends to drive the affordability of mortgages by providing more long-term funding to financial institutions, an incentive to enable them offer long tenure loans to homebuyers.
"The project will also assist the Ministry of Lands and Physical Planning to improve property registration and address structural constraints in the land management system in Kenya," the World Bank said in a statement.
The project will be implemented through KMRC, the National Treasury and the Lands ministry.
"We believe Kenya's vibrant private sector offers an excellent opportunity to crowd in privately-held skills and resources towards achieving the country's Big Four affordable housing goals and in alignment with the World Bank Group's Maximizing Finance for Development agenda," said Felipe Jaramillo, World Bank's Kenya Country Director.
The lender did not, however, reveal the process for Kenyans to access the funds, the terms, or interest rates.
Currently, commercial banks in Kenya hold only about 26,000 mortgage loans of an individual value of Sh11million.
According to the World Bank, the 2016 interest rate cap, coupled with an overall Non-Performing Loan (NPL) ratio of 12 per cent, led banks to tighten their credit standards and offer variable rate loans, locking out middle to low income would-be homeowners.
"Urban housing currently remains unaffordable for most Kenyans due to cost of financing, the short loan tenures and the high cost of properties," the World Bank boss added.
Kenyans largely access loans from saccos that are estimated to provide almost 90 per cent of Kenya's total housing finance.
Regarding this, the lender said, "While saccos' interest rates remain low at 12 per cent, they remain highly constrained by the short-term nature of their deposit liabilities and short loan tenures of not more than five years."
The KAHFP support will target households classified by the government as falling within the mortgage gap and low-cost categories representing 95 per cent of the formally employed population.
"The World Bank has supported many mortgage refinance companies in emerging markets, and Kenya has the right pre-conditions for KMRC to be successful, such as supportive macroeconomic conditions, well-developed capital markets and financial institutions active in housing finance," said Caroline Cerruti, World Bank's Senior Finance Specialist and Task Team Leader for the Project
KAHFP is expected to increase access to finance by tripling the proportion of urban households with access to a mortgage.
The project will promote inclusive finance by way of the KMRC serving saccos and microfinance banks which target borrowers on low and irregular incomes.
Investment in affordable housing will have a strong economic multiplier effect, given the number of linked sectors, and could support 132,000 new jobs.
"Better housing conditions are also linked to improved health and education outcomes," the lender noted.