Mortgage Refinancing as a tool for Affordable Housing Financing: The Promise of the Kenya Mortgage Refinancing Company (KMRC)


The Promise of the Kenya Mortgage Refinancing Company (KMRC)

Authored by: Stephen Mallowah, Lucy Mwaura, Grace Kala, Oscar Mbabu – Triple OK Law Advocates


A 2014 report by the National Treasury/Central Bank of Kenya (CBK) Committee cited availability of land for affordable housing projects, high construction costs, preference for larger housing units and limited availability of financing for developers as major blockages in the housing supply and transaction process. Costly land registration processes for multi-unit developments resulting in mortgaged purchases being priced at as much as 10% or more to cover developer’s carrying costs, was also identified as an inhibiting factor.  

Kenya, like Nigeria, Malaysia, Tanzania and Egypt’s primary mortgage markets is also faced with the predicament of developing against the hindrances of high interest rates on mortgages, lack of standardization in the activities surrounding origination, underwriting and servicing of loans and the lack of substantial mortgage portfolios by financial institutions. However, these governments’ response has been unilateral through the establishment of a Mortgage Liquidity Facility (MLF), a financial institution designed to support long-term lending activities by Primary Mortgage Lenders (PMLs). MLFs act as an intermediary between PMLs and the bond market with the objective of providing long term funds at better rates, terms, and conditions than PMLs can obtain if acting independently. They also provide temporary liquidity support to lenders through collateralized short-term operations i.e., repurchase agreements which is highly advantageous.

The Central Bank of Kenya (Mortgage Refinance Companies) Regulations 2019, regulates mortgage refinance companies plying their trade in the Republic of Kenya. In Kenya, the sole institution licensed to carry out MLF activities under the Regulations is the Kenya Mortgage Refinance Company (KMRC), a limited liability company incorporated under the Companies Act. Its shareholders include the National Treasury of Kenya, 20 primary mortgage lenders (PMLs) 8 commercial banks, 1 microfinance bank, 11 SACCOs and 2 development finance institutions (Shelter Afrique and the International Finance Corporation).

As a newly created, private, non-bank financial institution restricted to providing long-term funding and capital market access to mortgage lenders and issuing bonds to investors, it will increase the availability and affordability of mortgage loans to Kenyans. It will neither take deposits nor lend directly to individual borrowers and is subject to regulation and supervision of the CBK.

Notable MLFs throughout the globe and their impact

The study of the nature and impact of numerous MLFs deployed within their own respective primary mortgage markets and with similar mandates to the KMRC can act as a barometer to the expected outcomes which will be brought forth by its establishment. Some notable MLFs include those formed in Jordan, France, Egypt and Malaysia. Below, we expound on the Jordan and France MLFs.

1.      The Jordan Mortgage Refinancing Company (JMRC)

Established in 1966 with the help of a World Bank loan, JMRC was set up at a time when the state housing bank had withdrawn from mortgage lending to focus exclusively on commercial banking.  JMRC comprises of 16 shareholders from both the public and the private sector.

Shortly thereafter the number of lenders active in mortgage lending increased from two to ten and the stock of mortgage loans increased from JD 100 million (1997) to JD 336 million (USD 470 million) (2001). Conversely, down payments required from borrowers declined while loan maturities more than doubled and are now generally between 12 and 15 years, highest being 20 years. JMRC’s impact has been substantial with a total refinanced loan amount of JD 1.467 billion (USD 2.07 billion) in 2018.

2.      Caisse de Refinancement de l’Habitat (CHR) (France)

The CRH was created in 1985 following legislation aimed at facilitating the refinancing of loans through the issuance of bonds. Currently owned by 18 institutions making use of the facility, it is operated with a small number of staff operating its business model without charging a margin to its borrowers. Its refinanced portfolio amounts to $25bn (2005) equivalent to 4% of the then French mortgage market and its profits stem from the return it makes on its capital which is then paid out as dividends to its members.

CRH’s business model is minimization of financial risks achieved through matching assets and liabilities on a marked to market basis, elimination of prepayment risk by doing so at market value, facilitation of repossession through legislation allowing security interest in the underlying housing loan, minimization of over-collateralization to 25% and commitment of members to providing CRH with liquidity if required.

CRH exemplifies how operational efficiency of an MLF can create significant tangible value for the given mortgage market at a low total cost leading to consistent service delivery.

How will the KMRC operate?

The KMRC will engage in 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 financing 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. A primary objective of any MLF is minimization of any possible risks in order to achieve the lowest spread to Government bonds as possible. Being seen as a secure low risk institution is therefore crucial in gaining a good rating for the bonds which they issue.


KMRC can create greater competition in the mortgage market as new institutions can enter the market regardless of the restrictions placed on their operational capabilities, such as their investment in a branch network, their credit rating and their deposit collection capabilities. Inclusion of the SACCO sector, which has shown resilience and a unique blend of performance and sturdiness, could be part of the solution to originating mortgage loans to low- and informal-income earners in the near future.

By acting as central refinancing platforms, MLFs are able to be utilized as a force for standardization in the market, pushing PMLs to adhere to best practice, a need identified by the Cabinet Secretary for National Treasury. MLFs also allow for greater transparency and create better market information systems which results in better risk management, better market and consumer regulations, and a drop of risks associated with mortgage lending a welcomed outcome in Kenya’s growing primary mortgage market.