Chase Bank’s subsidiary, Rafiki, has started mortgage financing targeting low-income earners, becoming the latest institution to join lenders competing for the low end of the home loans market.
Rafiki joins Jamii Bora and Select Africa, which sell home loans to workers in the informal sector and salaried low income earners.
The micro-finance lender expects to fund homes built using new technologies with the prices ranging between Sh1 million to Sh3 million, on mortgages payable over a 10-year period.
Rafiki relies heavily on long-term funds from foreign-based private equity firms and development financiers for capital to extend loans for home acquisition.
Daniel Mavindu, the managing director, says the firm’s model offers predictable and low-risk business prospects. “We plan to lend up to 25 per cent of the loan book to home loans,” he said.
Some international lenders keen on investing in the Kenyan home market were ready to inject the funds the institution needs.
Rafiki plans to finance 100 per cent of the construction costs for individuals with land, and an additional 70 per cent of the cost of land for people who do not already have land.
The loans will be priced at 18 per cent on a variable interest rate schedule.
“The prospects in housing microfinance are very strong because most people are either in the informal sector or are low-income earners,” he said.
Buyers of the cheapest house would pay a monthly mortgage of about Sh19,000 for ten years.
Mineco House, a local construction firm, will build the homes with cheaper materials like interlocking concrete blocks and light steel for trusses to replace timber.
Mate Njeru, the managing director at Mineco, said that using inter-locking blocks ensures the homes will be completed in about 30 days, while other major savings are realised by bringing the floor to above the surface, avoiding excavation.
Rafiki’s entry comes a year after Jamii Bora Bank unveiled its home loan product targeting buyers into housing estates developed by its subsidiary, Makao.
Wagane Diouf, the managing director at Makao, said that the housing micro-finance had a big potential in Kenya because most prospective home owners were unlikely to qualify for mortgage products offered by mainstream lenders.
He said cheaper building technologies promised to cut the cost of home ownership by half despite the soaring property prices that have increasingly made it impossible for a vast majority of households to own homes.
“The entry of more players shows that there are vast opportunities in lending to the lower income segment,” said Mr Diouf, whose firm has sold more than 300 home loans in the last 12 months in its Kisaju low-cost housing project.
Select Africa, a subsidiary of African Alliance, also entered the Kenyan housing micro-finance sector early last year hoping to meet the ballooning demand for home ownership.
Its model allows poor households to develop their home incrementally over several years, with the micro-financier providing the funding as well as the building technology.
Only 1,084 new mortgage accounts were opened by all players over an 18-month period to December 2011, according to a survey by the Central Bank of Kenya.
CBK reported that there were a total of 16,135 mortgage accounts in the entire banking sector, dominated by four commercial banks and one mortgage financier.
Most of the respondents in the CBK survey covering the residential segment cited low income levels, the lack of credit history on borrowers and the lack of housing as the main challenges that slowed the uptake of the mortgage business.
Nearly a quarter — 23 per cent — of the respondents said the cost of homes was too high compared to the average income levels.
Other housing surveys show that the average home prices in Nairobi have risen nearly three-fold since 2001.