Ensuring sustainability in affordable housing programme

Climate change-induced risks are becoming a stark reality, affecting millions, not only in Kenya but globally. The consequences of recent heavy rains that led to significant flooding in urban centres and rural neighbourhoods have impacted large communities.

The above-average rainfall during the March-April-May-long rains brought with it heartbreaking stories. Lives were lost. Homeowners watched as their houses were submerged or swept away by the raging waters, leaving them structurally damaged.

As a result, substantial financial losses were incurred. The consequences of these climate-related disasters have been catastrophic, underscoring the importance of proactive measures to mitigate climate risks.

The homes we live in and the environment around us are crucial to our well-being. Housing, a key policy priority, stands at the intersection of achieving inclusive growth and environmental sustainability.

At the Kenya Mortgage Refinance Company (KMRC), we care about sustainability and the preservation of the environment, recognising that sustainable housing is a cornerstone for an inclusive and sustainable economy.

Moreover, within the housing ecosystem, sustainability and the embedding of Environmental, Social, and Governance (ESG) practices are not only moral but also pragmatic imperatives. Central to realising these goals is the financial system, the heartbeat of any economy.

As a result, we are calibrating and integrating environmental considerations aimed at reducing environmental impact. This promotes social responsibility and ensures long-term economic viability in our operations and through partnerships with primary mortgage lenders.

In our drive for sustainability, we pursue various initiatives. Specifically, we apply environmental and social policy in screening before refinancing the mortgage portfolios of our participating primary mortgage lenders.

The assessment includes an evaluation of environmental and social factors as a minimum requirement to qualify for KMRC refinancing. 

Environmental factors consider the sustainability of the property financed in terms of location and compliance with legal and regulatory requirements.

Applicable laws

We have provided participating lenders with an exclusion criterion that disallows the financing of housing projects that fall short of expected compliance, including those that are illegal, non-compliant with applicable laws, associated with illegal forced evictions, involve outstanding disputes, or are built in riparian regions.

Additionally, social dimensions are equally important, and the assessment screens portfolios against social factors. Among these, we consider the labour and working conditions of the primary mortgage lenders and extend this to cover workers involved in the construction of the property.

The screening is rigorous, and deliberately so. By adhering to these standards, mortgage originators can significantly mitigate risks and contribute to sustainable development.

Integrating ESG principles into mortgage origination is not just about risk management; it is a compelling business strategy that translates into more stable and sustainable business models.

Consumers, investors, and policymakers increasingly value sustainability and ethical business practices.

At KMRC, we promote affordable homeownership—a basic human need and a central driver of well-being. Our business model is hinged on social responsibility through the promotion of homeownership for the middle- to lower-income segments of the market.

As part of our efforts to embed sustainability in the housing ecosystem, expanding to underserved moderate-income segments is a key priority.

A recent assessment indicates that out of the nineteen million people employed in Kenya in 2022, about 16 million worked in the informal economy.

Informality has been a hindrance to homeownership, yet a large share of the population is employed in the informal sector. Beyond the obstacles specific to the informal sector, the challenges for accessing housing finance are compounded for low- to middle-income households, even when housing solutions are available to them.

As part of our initiative to serve this underserved market segment, whose incomes are irregular and often undocumented, we are implementing a risk-sharing facility to de-risk lower-income earners, ultimately achieving a broader social impact. Ensuring widespread access to affordable housing is now a policy priority in Kenya. At the same time, mitigating and adapting to climate change is equally urgent.

The costs of climate change to modern societies are significant, with consequences that will only grow if left unaddressed. As the impacts of climate change intensify, the need for sustainable housing solutions will increase.

The resilience and effective functioning of our housing markets depend not only on affordability considerations but also on how we embed sustainability in the process.

Embracing ESG principles offers a roadmap for developing affordable housing that is environmentally sound, socially inclusive, and economically viable.  It is a vital step towards a sustainable future where everyone has access to safe, decent, and climate-resilient housing.

The writer is the CEO of Kenya Mortgage Refinance Company