OVERVIEW OF KMRC
KMRC was established as a key institution to support the Affordable Housing Pillar of the Government of Kenya’s Big 4 Agenda. It was incorporated on 19 April 2018 as a non- deposit taking financial institution under the supervision of the Central Bank of Kenya with the single purpose of providing long-term funds to primary mortgage lenders (Banks, Micro Finance Banks and Saccos) in order to increase the availability and affordability of mortgage loans to Kenyans.
The entry of KMRC in the market is expected to improve mortgage affordability, increase the number of qualifying borrowers and result in the expansion of the primary mortgage market and home ownership in Kenya. The company will offer fixed rate long term loans initially at concessional rates to financial institutions.
Financial institutions are expected to pass the benefit to Wananchi of fixed long-term funds potentially at lower than market rates. For sustainability, KMRC will raise long-term funds from the capital market which will be used to refinance mortgages. Loans issued by KMRC to financial institutions will be secured against a portfolio of underlying mortgages from each financial institution or alternative collateral.
The Government of Kenya adopted a public private partnership (PPP) arrangement in establishing KMRC with majority private sector ownership. The Government of Kenya through the National Treasury owns twenty (20) percent of the Company while the remaining eighty (80) percent is divided among eight (8) Commercial Banks, one (1) Microfinance Bank, eleven (11) SACCOs and two (2) Development Finance Institutions. The two development finance institutions (IFC and Shelter Afrique) are currently undertaking due diligence processes before investing equity in KMRC.
KMRC LEGAL AND REGULATORY FRAMEWORK
KMRC is established as a private limited liability company incorporated under the Companies Act (2015). However, the company converted into a public limited company (PLC). The Company is subject to regulation and supervision of the CBK with CMA providing oversight over its bond issuance operations. The Company is expected to comply with the Central Bank of Kenya (Mortgage Refinance Companies) Regulations, 2019. The operations of the company will be guided by its Articles of Association.
KMRC is supervised by the CBK. To this end the Central bank Act was amended in 2018 to empower CBK to regulate mortgage refinance companies. Further, Central Bank (Mortgage Refinance Companies) Regulations, 2019 were developed and gazetted on August 16, 2019.
The said Regulations sets the requirement for licensing of Mortgage Refinance Business as well as the authorized activities/business of a mortgage refinance company which includes:
- Refinancing or purchasing of eligible mortgage loans;
- Investment in debt securities issued by the Government of Kenya or any guaranteed debt;
- Extending finance to primary mortgage lenders for refinancing of eligible mortgages;
- Issuing bonds, notes and other financial instruments for purposes of meeting its objectives; and
- Other activities as may be prescribed by the Bank from time to time.
To qualify for grant of a license KMRC shall meet the capital adequacy requirements including a minimum core capital of not less than one billion Kenya shillings and its directors and management must meet the fit and proper requirements.
KMRC LENDING OPERATIONS
As a wholesale lender, KMRC will generate bulk loans to participating financial institutions. KMRC will therefore offer two categories of loans to its members:
Affordable housing loans: These loans will be offered to participating financial institutions to finance affordable housing loans as per the GoK’s Big Four Agenda. Affordable housing loans are expected to be capped at KES. 4 million within Nairobi metro (Nairobi, Kiambu, Machakos and Kajiado); and KES. 3 million elsewhere and extended to borrowers with a monthly income of not more than KES. 150,000. These loans will be funded through concessional funding mobilized by the National Treasury through International Development Partners and extended to KMRC to refinance participating financial institutions’ affordable housing loans.
Market rate housing loans: These are loans extended to member institutions to finance housing loans issued at market rates (i.e. above affordable housing loan). These loans will be fully funded through the issuance of bonds at the capital markets.
Initially, KMRC may refinance existing mortgage loans that meet the eligibility criteria with the primary mortgage lenders required to provide alternative collateral which could be in form of Government Securities, Cash or deposits.
As a non-deposit taking financial institution, KMRC will be funded through debt and equity. In addition to equity, KMRC will receive subordinated capital from international development partners through the National Treasury to fund its operations. The subordinated debt will be drawn as certain Disbursement Linked Indicators are met, which would be based on KMRC reaching certain lending volumes and/or bond issuance targets.
The National Treasury with assistance from World Bank (WB) and African Development Bank (AfDB) is supporting the affordable housing agenda and more specifically KMRC.
The WB has approved an IBRD credit of USD 250 million (in Euro equivalent) to support the establishment and operationalization of KMRC.
Similarly, the African Development Bank (AfDB) has also approved a sovereign loan of US$ 100 million (Euro 90million) to support the KMRC lending operations. AfDB financing will be in form of credit line and subordinated debt.
The credit lines and subordinated debt will be loaned to the Government (through the National Treasury) and thereafter on-lent to KMRC through subsidiary/subordinated debt agreements. KMRC will lend to financial institutions (PMLs) in KES and at a fixed rate.