Saccos have overtaken banks and other mortgage providers in giving out construction loans to Kenyan homeowners.
According to a recent World Bank report, the share of savings and credit co-operative-financed housing in the country stands at more than 90 per cent.
The report shows that the co-operative sector is providing over 100,000 housing loans, with 10 per cent being actual registered mortgages.
The sector also provides these funds, mostly packaged as development loans, at more affordable rates, rarely exceeding 14 per cent interest annually, even before the interest rate regime was enforced late last year.
Mehnaz Safavian, lead financial sector specialist at World Bank regional office in Nairobi, told The EastAfrican that Saccos offer smaller formal mortgage loans through the Kenya Union of Savings and Credit Co-operatives (Kuscco) Housing Fund. They also provide unsecured loans used for construction.
“Some of them offer shorter medium-term loans of as little as 1.05 per cent per month interest (12.6 per cent poer annum) for an amount of up to three times the savings balance held with them, with repayment terms stretching to as long as seven years. Despite limits on the amount and the shorter term, this type of credit is more easily accessible and is provided at a cheaper rate than many of the main banks can offer,” said Ms Safavian, a co-author of the World Bank report.
The major constraint for Kenyan low and middle-income property buyers has been financing. Despite the mortgage market growing at around 30 per cent annually, the overall mortgage portfolio remains modest, with fewer than 25,000 mortgages, with an average size of $80,000.
Kenya’s mortgage debt in 2015 was 3.15 per cent of GDP, with the total mortgage book issued by commercial banks being $2.1 billion.
“We have seen housing co-operatives purchase land and resell to members with some financing support for self-building,” Ms Safavian said. “In some instances, they act as a full developer, with projects ranging to several hundred units and prices varying from as low as $6,000 to $14,000.”
Lack of capital
Despite Saccos narrowing the gap in housing finance, they are still held back by lack of capital.
“Saccos have only one main source of liquidity — members’ deposits. Without access to longer-term sources of finance, their loan portfolio will not grow further,” she said.
Banks’ main undoing in attracting mortgage clients is the lack of standardisation of mortgage market documentation, such as loan underwriting, documentation and servicing procedures.
“The constraints for banks are mainly in terms of risk-return decisions, but housing finance is considered to be relatively unattractive, compared with investment in, say, T-bills. The administrative burden of complex land transfer and mortgage registration is a further disincentive to increase the amount of mortgage finance," Ms Safavian said.