Markets & Finance

KMRC taps Sh3bn AfDB, World Bank loans


Kenya Mortgage Refinance Company (KMRC) Chief Executive Officer Johnstone Oltetia. FILE PHOTO | JEFF ANGOTE | NMG

Kenya Mortgage Refinance Company (KMRC) tapped an additional Sh3.16 billion from World Bank Group’s and African Development Bank’s credit lines in the half-year ended June to support concessional funding to prospective homebuyers.

This is part of the access to the 309-million-euro credit lines offered by the two financiers in 2020. The loans, guaranteed by the National Treasury, raised the home loan refinancier’s borrowings by 17.35 percent to Sh21.44 billion from Sh18.2 billion in December 2022.

Read: Explainer: Ways you can own a house through KMRC

KMRC accesses the funds through the Treasury at a fixed interest of 4.5 percent before on-lending to participating mortgage lenders at an interest rate of five percent.

The participating primary mortgage lenders—banks and Saccos— are required to charge homebuyers less than 10 percent interest, with a repayment period of up to 25 years.

KMRC disbursed an additional Sh892.77 million to three saccos and one commercial bank in the January-June period, raising the cumulative housing loans portfolio to Sh7.64 billion.

“We expect an increase in loan uptake in the second half of the year on the backdrop of the favourable single-digit interest rates in an environment where lending rates have increased significantly,” KMRC told the Business Daily via email. “This is because the fixed rates of KMRC-backed home loans favours borrowers.”

Commercial banks have raised the cost of home loans to more than 18 percent in the wake of elevated inflation and resultant higher benchmark interest rates by the Central Bank of Kenya, pricing out more workers whose average real earnings have remained negative for the last three years.

Prospective homeowners, who earn a maximum of Sh150,000, borrow up to Sh8 million in home loans from their banks participating in the KMRC framework for property in the Nairobi metropolitan area and Sh6 million elsewhere.

Workers with an income of more than Sh150,000 a month, however, access housing loans at market rates because their income is deemed sufficient to service the loans advanced directly by lenders.

“The current lending environment, characterised by an increase in lending rates due to inflation presents an opportunity for KMRC to Increase scale in lending since KMRC rates remain the same,” the firm said. “Government focus on unlocking the supply by facilitating the construction of affordable housing across the country also presents an opportunity for KMRC to lend more.”

KMRC’s post-tax profit more than tripled to Sh362.75 million in the six months to June compared to Sh108.4 million a year earlier.

This was largely supported by more than doubling of net interest earnings in the review period to Sh610.26 million from Sh266.42 million a year earlier.

The firm raised a loan to value ratio to 105 percent from 90 percent previously in a bid to encourage increased uptake of concessional home loans.

The increment is aimed at eliminating the need for prospective homebuyers to deposit at least 10 percent of the value of the house to get funding from commercial lenders under the KMRC framework.

This means a buyer looking for funding for a house valued at Sh5 million, for example, can now access a loan of up to Sh5.25 million from participating banks and saccos from Sh4.5 million previously.

The cost of construction has been a major impediment to building affordable housing units, and has been hurting the State’s plan to erect 500,000 units in five years through 2022 under the previous regime of retired president Uhuru Kenyatta.

Read: KMRC grows cheap home loans four-fold to Sh6.8bn

His successor William Ruto has set an ambitious target of 250,000 units every year largely funded through a 1.5 percent housing levy on gross salaries.

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