The World Bank has approved US $250m loan to Kenya for affordable housing project amid controversies due poor public buy-in.
Felipe Jaramillo, World Bank’s Kenya Country Director said that 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 loan is expected to provide a silver lining for the government’s affordable housing project. We own 80% of KMRC while the remaining 20% is for the National Treasury. Additionally, about 20 banks and savings and credit cooperative societies (saccos) have contributed capital so far,” said Mr. Felipe.
Urban housing currently remains un-affordable for most Kenyans due to cost of financing, the short loan tenures and the high cost of properties. Kenyans largely access loans from saccos that are estimated to provide almost 90% of Kenya’s total housing finance.
According to the World Bank, the 2016 interest rate cap, coupled with an overall Non-Performing Loan (NPL) ratio of 12%, led banks to tighten their credit standards and offer variable rate loans, locking out middle to low income would-be homeowners.
“While saccos’ interest rates remain low at 12%, they remain highly constrained by the short-term nature of their deposit liabilities and short loan tenures of not more than five years,” said Mr. Felipe.
Improving property registration
The project will assist the Ministry of Lands and Physical Planning to improve property registration and address structural constraints in the land management system in Kenya. KMRC is also expected to increase access to finance by tripling the proportion of urban households with access to mortgages.
“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,” added Caroline Cerruti, World Bank’s Senior Finance Specialist and Task Team Leader for the Project
KAHFP support will also target households which have been classified by the government as falling within the mortgage gap and low-cost categories representing about 95% of the formally employed population.