Thin margins block Saccos from accessing State's mortgage billions

Razor-thin margins on the Kenya Mortgage Refinance Company (KMRC) backed loans have made Savings and Credit Cooperative Societies (Saccos) uninterested in extending credit to their members.

This has dampened the ambition to build more affordable houses as envisioned by President William Ruto’s government.

Findings from a detailed report by KMRC, the Sacco Societies Regulatory Authority (Sasra) and Financial Sector Deepening (FSD) Kenya show that Saccos prefer to extend their own credit due to the double-digit interest rather than KMRC’s single-digit loans.

Additionally, Saccos do not have adequate capital that can be tied in long-term, as is with KMRC loans.

The report titled, Leveraging Sacco Data and Research to Strengthen the Financing of Affordable Housing Value Chain by the Sacco Sector, found that while KMRC-backed mortgages boost affordability, the uptake among Saccos is slow.

“Some (Saccos) are hesitant to allocate liquidity to the initial portfolio of KMRC mortgages, given the opportunity cost of other higher margin products,” the report says.

The report says lower interest rates and longer repayment periods make KMRC mortgages highly attractive to members seeking larger loan amounts. These loans are expected to gradually shift demand away from traditional development loans.

“However, the longer tenures tie up Sacco capital upfront as they build the initial portfolio for refinancing,” the report says.

The report compiled by AIS Capital Advisors notes that due to this tenure, Saccos would rather allocate this money to other loan products with shorter tenures and larger profit margins.

“This is, especially, a significant bottleneck for smaller Saccos with limited capital to lend larger amounts over longer tenures,” the report says.

“Moreover, this may affect liquidity and profitability if Sacco portfolios are not approved for refinancing due to various reasons, after having already lent to multiple members at the single-digit rates.”

KMRC, which is a State-backed financier, works by extending finance to primary mortgage lenders such as banks and Saccos at a single digit so that they also extend at the same rate, which is fixed over the tenure, to prospective homeowners.

According to KMRC’s 2024 annual report published in June 2025, of the 20 shareholders, Saccos own 7.47 per cent. The rest is distributed among banks (43.78 per cent), National Treasury (25.33 per cent) and development partners (22.9 per cent).

The Saccos affiliated with the institution are Kenya National Police DT Sacco, Mwalimu National, Qona, Apstar, Bingwa, Imarisha, Unaitas, Imarika, Stima, Harambee, and Tower Saccos.

Housing needs

In the period, KMRC extended Sh13.99 billion to 12 primary mortgage lenders. These lenders are: HFC Ltd, Credit Bank Ltd, Co-operative Bank of Kenya, KCB Bank Kenya, Absa Kenya Plc, Stanbic Bank, Apstar Sacco, Tower Sacco, Stima Sacco, Unaitas Sacco and Qona Sacco.

Credit advanced to Qona Sacco stood at Sh215.0 million (from Sh55.9 million in 2023), Sh758.6 million for Stima Sacco (from Sh474.6 million in 2023), Sh207.9 million for Tower Sacco (from Sh21.1 million in 2023), Sh536.5 million for Unaitas Sacco (from Sh228.0 million in 2023) and Sh200.0 million for Apstar Sacco (from Sh138.5 million in 2023).

On the other hand, the Sasra 2024 report shows Saccos are still the go-to institutions for housing needs, with data showing that Sh137.1 billion was disbursed in the year for land and housing purchases. This is a growth from Sh126.1 billion.

“It is noteworthy that although the proportion of loans and credit advances issued by regulated Saccos towards land and housing sectors remained the highest and most dominant, the same has been on a downward trajectory from a market share of 33.24 per cent in 2022 to 26.97 per cent in 2023 and 25.26 per cent in 2024,” reads the Sasra Supervision Report 2024.

According to the report in discussion, the majority of land and housing loans disbursed by Saccos range between Sh100,000 to Sh1.5 million, moderately priced at 10 to 16 per cent. Repayment periods are between two to eight years.

Mortgages, however, have a tenure of nine to 10 years with interest rates lower than 10 per cent due to KMRC’s refinancing. “Other mortgage products not refinanced by KMRC are priced slightly higher, ranging between 12 and 18 per cent,” the report says.

Annualised rates

Additionally, short-term emergency loans are still being used by members to finance land and housing needs despite being the least cost-efficient for property investment, which is a win for Saccos in need of the higher margins.

The report says some annualised rates exceed 30 per cent.

The report by Sasra, FSD Kenya, and KMRC suggests a special type of funding – a facility that can bridge the financing gap in Saccos – as the catalyst to entice the institutions to uptake the single-digit loans.

By providing short-term capital, they say, the gap between mortgage disbursement and initial financing will be covered.

“To offer affordable single-digit loans, the facility would require a substantial concessional capital component from development partners or government sources,” the report says, adding that the affordable housing levy pot could be the source of this capital.

Nigeria and Tanzania, which both have State-backed mortgage refinance companies, are the benchmarks for this product.

In Nigeria, there is the Mortgage Warehouse Funding Ltd, which provides short-term (six months) pre-financing whose aim is to improve liquidity for mortgage lenders to be eligible to tap into the Nigeria Mortgage Refinance Company credit.

Tanzania Mortgage Refinance Company, however, offers pre-finance loans to lenders who have launched mortgage products but lack the volume of eligible loans for refinancing.

“They give lenders upfront liquidity, allowing them to disburse mortgages without delays and easing liquidity constraints,” the report says.