State mortgage firm gets nod

An affordable housing project site in Ngara, Nairobi. FILE PHOTO | NMG 

The legal hitch that delayed the take-off of State-backed firm meant to boost the access of cheaper mortgage through making it easier for banks to access long-term finance for home loans has been cleared.

The Central Bank of Kenya (CBK) has gazetted rules to guide operations of mortgage refinancing firms, paving the way for licensing of the Kenya Mortgage Refinancing Company (KMRC).

The lack of permit stalled operations of the KMRC and denied the firm Sh35 billion the African Development Bank (AfDB) and World Bank had pledged as its startup capital. The two lenders had committed to inject into the firm $100.51 million (Sh10 billion) and $250 million (Sh25 billion) respectively.

The KMRC is expected to raise cash from sources such as bonds for lending to banks and co-operative societies using their mortgage loan contracts with customers as security, offering lenders long terms funds for cheaper mortgages.

The KMRC, whose skeleton staff had been seconded from the Treasury, will now operate under the capitalisation rules guiding operations of banks that require a minimum core capital of Sh1 billion, the CBK said.


It will also be required to maintain a minimum of 10.5 percent and 14.5 percent of total risk-weighted assets plus risk-weighted assets in core and total capital, respectively.

The CBK rules now allow the firm to issue bonds, notes and other financial instruments to raise funds to execute its objectives, with further cash coming from returns emanating from investments in government debt securities and guarantee funds.

The regulator has also capped lending to a single participating bank, required to price home loans below market rate, at 25 percent of KMRC’s core capital.

World Bank and AfDB had required proof of the CBK permit before allowing the use of the billions, which will lead to mortgage rates below market rate.

The KMRC targets to lend at below 10 per cent.

High-interest rates have also been blamed for keeping mortgages out of the reach of many people.

Kenya had just 26,187 mortgage loans valued at Sh22.2 billion in 2017or less than one percent of gross domestic product (GDP) in the year, compared with about 30 percent of GDP worth of outstanding mortgages in South Africa.