Ukulima Sacco Introduces a Mortgage Product

Ukulima Sacco Introduces a Mortgage Product to Enable Members Own Homes

By Malachi Motano

Ukulima Savings and Credit Co-operative Society, continues to play an important role in the realization of housing and mobilization of funds; in line with the government’s Big 4 Agenda on affordable housing for all.

“As you are aware, the Kenyan Sacco sector is the largest in Africa and is globally ranked at the seventh position, according to a report by the World Council of Credit Unions (WOCCU). This puts us in a better position to lend to Kenyans at affordable interest rates,” says Sacco Chairman Dr. Philip Cherono.

In its committed efforts to reduce the huge housing supply gap, to enable every Kenyan to own a home; the Sacco has partnered with the Kenya Mortgage Refinance Company (KMRC).

The partnership will ensure that funds are availed for onward lending to members, primarily for mortgage uptake purpose. In addition, the Sacco will be able to lend to Kenyans at affordable interest rates, which is nearly half the current market rates.

Prospective buyers will qualify for mortgages of up to Kshs.8 million, with a repayment period of up to 20 years. The funding is expected to drive the number of mortgage accounts, to an estimated 2,000 in the first year and 4,000 by the year 2022.

“We are very happy that Ukulima Sacco is part of this great and noble initiative. The partnership with KMRC supports our mission of enhancing members’ empowerment; through the

Ukulima Sacco Chairman Dr. Philip Cherono.

provision of quality financial services, in providing long-term funding and reducing our reliance on shortterm loans,” says the Chairman. According to him, as the Sacco introduces and adds the mortgage product to its catalogue, it would also be participating towards the realization of the affordable housing programme for the country; which as aforementioned is part of the Big 4 Agenda for the provision of affordable housing to citizens.

While Kenyans are increasingly resorting to mortgages to acquire homes, the 2019 affordable housing yearbook published by Centre for Affordable Housing Finance (CHAF); indicated that the main barriers to mortgage issuance includes: asset-liability mismatch by tenor due to the relatively longterm nature of mortgage loans and short-term nature of bank deposits, limited access to capital markets funding for mortgages resulting in low supply of long- term capital, a complex legal and regulatory framework coupled with collateral requirements, making mortgages exceedingly expensive.

KMRC CEO Johnstone Oltetia (left) CEO

Even though the number of mortgage loans has been growing by a compounded annual growth rate (CAGR) of 5.7% since 2013; the average mortgage size in Kenya has been growing at a higher CAGR of 9.6% from Kshs. 6.9 million in 2013 to Kshs. 10.9 million in 2017, thus locking out

Ukulima Sacco.

potential homeowners.

According to CHAF, Kenyans generally access loans from Savings and Credit Cooperatives (SACCOs), which provide approximately 90% of Kenya’s total housing finance.

This is attributed to Saccos interest rates, which remain low at 12%. However, Sacco financing remains highly constrained by the short-term nature of their deposit liabilities and short loan tenures, housing and slum dwellings. Nearly 61% of urban

of not more than five years.

This has resulted in slow home ownership with only 26.1% of urban dwellers, owning the houses they live in the main constraint population of over 47 million people, the country faces

being access to financing instruments.

Kenyans’ homeownership aspirations have taken a remarkable turn, following the latest move by KMRC; which announced an arrangement to avail mortgages at 7% interest for Kenyans earning below Kshs.

Affordability is a major constraint to the growth of the housing and mortgage markets, with a key challenge to access decent housing. With a GDP of US$2,925 per capita and per annum as of 2016, few Kenyans can afford homes built by formal developers, resulting in mortgage lending being accessible to only a minority of the population.

The Country is facing high rates of urbanization and population growth. Although only 32% of the population live in cities today, the figure is expected to grow to 50% by 2050, according to UN Population Division (2014).

The rapid urbanization has resulted in large informal households live in very poor-quality housing or slums, according to the Millennium Development Goals’ statistics.

Provision of adequate housing for the low-income groups is a perpetual problem in cities. With a 150,000.

a critical shortage of housing units.

According to conservative estimates, there is already a backlog of 2 million housing units which typically increases by 150,000 units every year, due to several factors including the limited availability of mortgage finance and development finance.

The lending to shareholders and customers by KMRC,

Ukulima Sacco CEO Mr Richard Nyaaga presents a T-shirt to one of Ukulima’s oldest member during the 2020 customer service week.

was scheduled for December 2020. Richard Nyaanga the Sacco CEO, said the newly launched mortgage product is a game-changer and thus will help in quenching the thirst of the majority of Kenyans, who are in dire need of owning a home. “We are well aware of the current social and economic difficulties, particularly to our sector. This means that we need to get extra creative and aggressive business ideas,” said Mr. Nyaanga.

Ukulima Sacco has a countrywide network of branches in all the forty-seven counties, drawing its membership from the national and county governments; parastatals; private and academic institutions and business communities.

Committed not to leave anybody behind, the Sacco with the approval of the regulator has designed it’s two mortgage loan products to cater for the low income; carrying up to Ksh. 150,000 under Makao bora and Kshs 450,000 under Makao halisi loan products respectively.

The affordable housing loans under Makao Bora are funded through concessional loans mobilized by the National Treasury; through international development partners and extended to KMRC, for onward lending to participating financial institutions to finance affordable housing loans.

They are capped at Kshs 4 million within Nairobi metropolitan (Nairobi, Kiambu, Machakos and Kajiado); Kshs 3 million elsewhere by the PMLs and also extended to borrowers with a monthly income of not more than Kshs 150,000.

For Market Rate Housing Loans, Makao Halisi, the loans will be fully funded through the issuance

of bonds at the capital markets.

These are loans extended to member institutions, to finance housing loans issued at market rates above the affordable housing loan.