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KMRC Affordable Home Loans PMLs
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KMRC “Affordable” Home Loans: Key Features
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About KMRC
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Funding model
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Partnerships With PMLs
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KMRC “Affordable” Home Loans Program: Is this Solution to Kenya’s Homeownership Needs?
KMRC “Affordable” Home Loans program is a mortgage scheme financed by the Kenya Mortgage Refinance Company (KMRC) – a non-deposit taking financial institution in Kenya. Established in 2018 under the Companies Act of 2015, KMRC is reshaping mortgage finance in Kenya.
KMRC Affordable Home Loans PMLs
Loans under the KMRC Affordable Home Loans program are not issued by KMRC itself but instead disbursed by Primary Mortgage Lenders (referred to as PMLs). Currently, the following institutions have partnered with KMRC as PMLs:
- Commercial banks: KCB Bank, Cooperative Bank, DTB, HFC Limited, NCBA Bank, Absa Bank Kenya, Stanbic Bank, and Credit Bank
- Microfinance Institutions: Kenya Women’s Finance Trust (KWFT)
- SACCOs: Unaitas, Bingwa SACCO, Kenya Police SACCO, Safaricom SACCO, Harambee SACCO, Imarika SACCO, Imarisha SACCO, Apstar SACCO, Stima SACCO and Mwalimu National SACCO
SACCOs are aided to develop capacity in mortgage lending, including origination, developing underwriting criteria, and technical assistance. By working with SACCOs, KMRC aims to increase the reach of its mortgage products across the country, not just in urban areas and big towns.
KMRC Affordable Home Loans target to deepen accessibility to mortgages by offering loans with a single-digit fixed interest rate and long mortgage tenures. This makes them more affordable and accessible to a wider demographic of borrowers who would not otherwise be able to afford homes.
KMRC “Affordable” Home Loans: Key Features
- Reduced Interest Rates for Borrowers: KMRC obtains concessional loans in Kenyan shillings and extends these to its partner PMLs. They in turn pass on the benefit to mortgage borrowers at single-digit interest rates. The rates are also fixed which gives predictability and some certainty for KMRC, its PMLs and borrowers.
- Extending Loan Terms to Increase Affordability: KMRC’s funding allows partner PMLs to extend mortgage terms to up to 25 years.
- Supporting Down Market Lending: KMRC focuses on refinancing mortgages for low and moderate-income households. KMRC’s affordable home loans are capped at Kshs. 10.5 million for borrowers with a monthly income of 200,000 shillings or less.
- Supporting SACCOs as Mortgage Providers: For the first time in the Kenyan market, SACCOs can participate as mortgage providers through KMRC. Eleven SACCOs are shareholders in KMRC and act as partner PMLs.
- Promoting Competition and Innovation: KMRC’s entry into the mortgage market has increased competition among lenders and encouraged the development of more affordable mortgage products.
About KMRC
KMRC is regulated by the Central Bank of Kenya (CBK), while its capital-raising efforts are overseen by the Capital Markets Authority (CMA). It is a public-private partnership with the Kenyan government, through the National Treasury, which holds a 25% stake in the company, with private sector players owning the remaining 75%.
KMRC’s mandate is to:
- Provide long-term funding to PMLs which will make home loans more accessible and affordable for Kenyans.
- Contribute to the growth of Kenya’s capital markets. This is done through the issuance of corporate bonds as a source of sustainable long-term finance.
- Support the standardization of mortgage origination practices in Kenya.
- Contribute to the growth of the mortgage market in Kenya.
It aims to increase the availability of affordable housing, particularly for those in the moderate to low-income bracket. As such, the margins on loans are intended to cover operational expenses and develop long-term sustainability.
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This is how it works:
- KMRC obtains funding from a variety of sources, including the Kenyan government, international Development Finance Institutions (DFIs), and the capital markets. It also raises capital from the bond market and blends this more expensive capital market funding with the concessional funding to reduce lending costs.
- It then lends this funding to its partner PMLs, which include commercial banks, a microfinance bank, and 11 SACCOs – primarily lends to its shareholders, which includes 8 commercial banks, 1 microfinance bank, and 11 SACCOs.
- The partner PMLs, in turn, use this funding to originate mortgages for individual borrowers. The PMLs set their interest rates on the mortgages, but KMRC encourages them to offer single-digit interest rates to borrowers. KMRC also requires that partner PMLs meet certain criteria in order to qualify for refinancing, including that the mortgages be for first-time homeowners and owner-occupied properties, be performing loans, and meet specified Loan-to-Value (LTV) and debt-to-income ratios.
Partnerships With PMLs
This model allows KMRC to leverage the existing infrastructure of the PMLs and to reach a wider range of borrowers. It is designed to address the challenges that have traditionally made it difficult for Kenyans to access affordable home loans.
By providing long-term, fixed-rate financing to PMLs, KMRC’s “Affordable” Home Loans program helps to reduce the risk and cost of mortgage lending. This makes it possible for PMLs to offer more affordable mortgages to borrowers.
KMRC “Affordable” Home Loans Program: Is this Solution to Kenya’s Homeownership Needs?
The presence of KMRC in Kenya’s mortgage market is a positive development and can be integral to driving homeownership in Kenya. Accessibility to affordable housing in Kenya is a complex, multifaceted problem, plagued with many challenges. The establishment of KMRC is a step in the right direction. The impact KMRC will have is still in its nascent stages.
With a reported disbursement of over three thousand mortgages over just five years, KMRC has energized the mortgage market. It has improved accessibility for individuals at lower levels of income than traditional mortgage lenders would ordinarily target.
Conclusion
Considering differentials in household incomes, factors like inflation, and an onerous and unpredictable tax regime, the dream is not yet within reach. Additionally, KMRC’s may need more innovative approaches for its funding to ensure the long-term sustainability of its funding model. The jury is still out on this one.
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