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The World Bank has approved a $250 million loan to enable access to affordable housing finance for Kenyans who are unable to access long-term housing finance. The loan has been granted under the auspices of the International Bank for Reconstruction and Development (IBRD).

Urban housing currently remains unaffordable for most Kenyans due to cost of financing, the short loan tenures and the high cost of properties. Currently, commercial banks in Kenya hold only about 26 000 mortgage loans of an individual value of $110 000. The interest rate cap of 2016, coupled with an overall Non-Performing Loan (NPL) ratio of 12%, led banks to tighten their credit standards and offer variable rate loans. This locked out middle to low income would-be homeowners.

World Bank loan to help Kenyans access affordable housing financeKenyans largely access loans from Savings and Credit Cooperatives (SACCOs) that are estimated to provide almost 90% of Kenya’s total housing finance. While SACCOs’ interest rates remain low at 12%, they remain highly constrained by the short-term nature of their deposits liabilities and short loan tenures of not more than five years.

The World Bank loan will finance the Kenya Affordable Housing Finance Project (KAHFP), which will support the establishment of the Kenya Mortgage Refinance Corporation (KMRC). This will be a largely private sector-owned and non-deposit taking financial institution under the supervision of the Central Bank of Kenya. KMRC’s goal is to drive affordability of mortgages by providing more long-term funding to financial institutions, an incentive to enable them to 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 KAHFP support will target households that are classified by the Government of Kenya to fall within the mortgage gap and low-cost categories, and which represent 95% of the formally employed population. KAHFP is expected to increase access to finance by tripling the proportion of urban households having access to a mortgage. The project will promote inclusive finance through KMRC serving SACCOs and microfinance banks which target borrowers on low and irregular incomes.

“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,” says Caroline Cerruti, World Bank Senior Finance Specialist and Task Team Leader for the project.

“We believe that Kenya’s vibrant private sector offers an excellent opportunity to crowd in privately held skills and resources towards achieving the country’s Big 4 affordable housing goals and in alignment with the World Bank Group’s Maximising Finance for Development agenda,” adds Felipe Jaramillo, World Bank Kenya Country Director. 

Image credit: http://www.worldbank.org/en/about/people/c/carlos-felipe-jaramillo

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