MFIs seen as way forward to boost housing supply

Housing experts say the attraction for MFIs is that most are connected to their customer base and understand the urban poor consumer psyche better than the regular mainstream financiers. Photo/LIZ MUTHONI
Housing experts say the attraction for MFIs is that most are connected to their customer base and understand the urban poor consumer psyche better than the regular mainstream financiers. Photo/LIZ MUTHONI 

The World Bank is calling on microfinanciers to fund housing projects in Kenya to meet the high demand for affordable homes in the low-end market.

The Bank said Kenya should take cue from India’s housing microfinancing concept that has already seen development of 20,000 homes for low income earners and is looking to deliver 500,000 units in a few years.

Speaking during the launch of the Housing Finance report in Nairobi, Simon Walley of the World Bank said:

“We need to work in parallel on housing solutions for poorer segments of society, particularly those in the informal sector, which represent the majority of the population.”

The housing microfinance concept was first launched by Monitor Group in India.


Monitor Group approaches companies and industries whose workers are low income earners and are interested in owning homes— to sign up with them.

They then link them with partner banks such as Axis Bank, SREI Infrastructure Finance Limited and Housing Finance Development Corporation that gives loans to these customers against their salary.

The house is then paid for through monthly deductions.

A customer pays a 20 per cent deposit on his house before commencing construction and pay 35 per cent of monthly income as instalments till the amount is completed.

Depending on the developer, houses are usually built within six months to one year.

“This model is aimed at managing the end price for a customer with limited affordability and unrecorded credit history,” said Ashish Karamchandani, a partner in Monitor Group.

Projects by the Monitor Group were displayed by the World Bank as a case study in the power of the new asset class to mobilise investors, financiers, builders and technology partners to ease the housing supply crisis.

The concept has been a success in India with more than 25 developers in the country following suit and have launched such projects in Mumbai, Ahmedabad, Bhiwadi, Haryana, Meerut, Nagpur, Bangalore, Chennal and Pune regions.

World Bank said the demand for low income housing in Kenya requires innovative private sector initiatives and the involvement of all stakeholders, owing to the low uptake of mortgages.

The latest report by the Bank indicates that mortgage uptake in Kenya represents 2.4 per cent of the GDP; while in South Africa it is 32.7 per cent and six per cent in India.

Many Kenyans have shied away from mortgages due to the high repayment rates.

Urban population

For example, for one to take an average Sh4 million mortgage, he has pay about Sh42,615 per month, a figure that is too high for most Kenyans.

Only eight per cent of the urban population were currently able to afford mortgage finance, the Bank said.

This is unlike in India, where housing microfinance firms are fast gaining momentum and has been identified as the best option in offering low income earners an investment opportunity.

To achieve its housing goals, Monitor Group works closely with partners.

The developer buys land parcels with near infrastructure such as schools and markets while architects do the layouts and designs and contractors develop the land.

“The supply for the houses is created through raising awareness and end-to-end facilitation of the local supplier ecosystem,” said Mr. Karamchandani.

He said “to ensure continuous affordability, the key is to innovate to manage prices— just like the consumer durables industry has done for decades.”

The architects and engineers working on the projects study new construction technologies and present projects that increase developers’ internal rate of return and shorten build time.

The developer is assured a guarantee of full occupancy by completion.

This encourages him to build faster and move on to the next project. For the developer, the value is derived from developing a quality product and delivering volumes.

The business of low-income housing has a 20-30 per cent margin and a 35-50 per cent internal rate of return on a conservative estimate, Mr Karamchandani said.

The Monitor project had delivered 50,000 units as per May 2010 with a target of 250,000 by 2012. But with now more than 25 developers across India, more homes will be constructed.

With a shortfall of more than 160,000 housing units a year, driving ever rising housing prices, borrowing a leaf from India could be the key to more Kenyans owning homes, argued the World Bank.

African Laughter