Capital Markets Authority (CMA) has approved an unsecured Sh10.5 billion medium-term note for Kenya Mortgage Refinance Company (KMRC) from the public to help fund affordable housing.

Meant to bring down the cost of mortgages in the country, KMRC will use the proceeds for on-lending by extending long term loans to primary mortgage lenders, in a bid to increase availability of affordable housing finance in Kenya.

Medium-term notes are debt instruments that are issued over a period of time continuously with maturities that range from 5 years to 10 years.

Unlike bonds that are issued once, MTN is issued and sold continuously by a dealer or various dealers over a period of time.

The KMRC deal will entail borrowing through a bond issue which will be done in various tranches beginning with Sh1.4 billion.

Affordable housing

‘’This is a major milestone which positions the capital markets as a source of funding to support productive economic activities such as delivery of affordable housing, which is one of the pillars of the national Big Four Agenda,’’ said CMA Chief Executive Wyckliffe Shamiah.

The deal, stipulates that the proceeds from the bond will be utilised alongside other concessionary funding at KMRC’s disposal.

Cash raised from the issuance will be disbursed to participating banks and Saccos for onward lending to borrowers.

While KMRC does not disclose how much it will cost borrowers to access the funds, it however says this move will help lower mortgage interest rates.

“This is the first time the Kenya Mortgage Refinance Company is issuing a medium-term note programme to raise long-term capital, in its quest to reduce mortgage interest rates and lengthen repayment tenors,” MRC said in a statement.

Kenya has an estimated 25,000 mortgages according to data from the Central Bank of Kenya indicating how expensive it is to get a mortgage in the country.

President Uhuru Kenyatta is targeting to drive the supply of affordable housing which is part of the Agenda Four development objectives.

Since it started operations in 2019, KMRC has relied exclusively on concessional loans from the World Bank and African Development Bank (AfDB), the continental Development Finance Institution (DFI), for such funds.

Building issuer profile

“Through this issuance, KMRC seeks to build its profile as a regular issuer of bonds as we work to raise more long-term capital, thereby re-financing more home loans and making them affordable and accessible for Kenyans,” said KMRC CEO Johnstone Oltetia.

Demand for affordable housing in Kenya is estimated at over 200,000 annually especially in the lower middle class that has been ignored by developers for so long. Most of the capital has gone financing housing for the upper middle class.

KMRC says its business model works by resolving the asset maturity mismatch that has contributed largely to high interest rates on home loans in Kenya.

The participating mortgage lenders, which are also KMRC shareholders include KCB, Co-operative, DTB, HF Group, NCBA, Absa, Stanbic and Credit Banks.