All You Need to Know About the Kenya Mortgage Refinance Company
Digital Team  |  Nov 9, 2020

The Kenya Mortgage Refinance Company (KMRC) is a treasury backed lender that began lending in September 2020 following approval to operate by the Central Bank of Kenya.

The facility is an initiative of the National Treasury and World Bank, formed in 2018 with the aim of supporting the affordable housing initiative, which is part of the government’s Big Four Development Agenda. KMRC provides secure, long-term funding to primary mortgage lenders (PMLs) such as banks, Sacco’s and other microfinance institutions within the country for onward lending to potential home owners.

KMRC has so far raised funds in form of loans and equity, and also plans to issue a green bond next year.

The World Bank extended approximately Kshs 25 bn to KMRC in the form of a concessional loan through the National Treasury, while the African Development Bank (AfDB) injected Kshs 10 bn. KMRC has also received additional funding from 19 undisclosed financial institutions comprising of seven commercial banks, 11 Sacco’s and one micro financer (Kenya Women Microfinance Bank) which bought shares through a participating programme amounting to Kshs 2.0 bn. As at September 2020, KMRC had raised funds worth Kshs 37.3 bn.

KMRC has two main types of products, they include;

  1. Affordable Housing Loans: These are loans that are extended to Primary Mortgage Lenders (PML) to refinance mortgage loans capped at Kshs 4.0 mn for Nairobi Metropolitan Area (Nairobi, Kiambu, and Machakos & Kajiado) and Kshs 3.0 mn elsewhere, at a 7.0% interest rate to individual borrowers whose monthly income is not more than Kshs 150,000, and,
  2. Market Housing Loans: These are loans that are extended to Primary Mortgage Lenders to re-finance mortgage loans above the affordable housing loans threshold. The market housing loans are valued above Kshs 4.0 mn, and will be issued at interests determined by the average market rates.

Some of the key objectives of KMRC include; i) assisting in the standardization of mortgage practices in Kenya through capacity building to member institutions, ii) contributing to the growth of Kenyan capital markets through the issuance of KMRC bonds as a source of sustainable long-term fund, iii) contributing to the growth of the mortgage market in Kenya through providing support to PMLs, iv) facilitating member institutions to extend the mortgage maturity in line with the objective of long-term finance, and, v) facilitating the entry of new mortgage lenders in the market in order to broaden the scope of mortgage issuance and increase competition.

The expected and current benefits of KMRC include; i) increased home ownership, ii) increased mortgage uptake, iii) increased liquidity to mortgage lending Institutions, and, iv) spurring competition in the mortgage market. On the other hand, the key challenges likely to face by KMRC include; i) limited housing options-given the relatively low loan size provided by KMRC potential homeowners will have few or no options of housing units within the Nairobi Metropolitan area (NMA) due to the relatively high property prices and low supply of affordable housing units thus forcing them to focus on housing units within satellite towns which are relatively affordable, ii) lack of clarity on how to maintain the low lending rates, iii) default rates are likely to be high, iv) competition from government instruments, v) failure by borrowers to meet mortgage loan eligibility criteria thus limiting uptake, and, vi) bureaucracy and inefficiencies from state departments.

In conclusion, KMRC is expected to; i) provide secure long-term funding at affordable interest rates, ii) contribute to the growth of the Kenyan capital markets, iii) facilitate entry of mortgage lenders, and, iv) improve home ownership in Kenya. To enhance sustainability of the lending terms, KMRC must ensure that the loan applications comply with the eligibility criteria provided. In addition, the facility will need to aggressively fund raise to ensure sustainability of relatively low lending rates.