Kenya has secured Sh559.60 million (4.0 million euros) in funding from the World Bank Group to kick-start a credit guarantee scheme for home loans taken by households with irregular income, or popularly referred to as ‘hustlers’.
The credit line will provide seed capital for the newly-incorporated Kenya Mortgage Guarantee Trust (KMGT), which will underwrite mortgages to homebuyers who largely operate in the informal, or jua kali, sector at the rate of 40 percent.
Kenya Mortgage Refinance Company (KMRC), which incorporated KMGT as a separate independent entity last year, said it has opened negotiations for additional funding from other Development Finance Institutions (DFIs).
“With 4.0 million euros, we have done some sensitivity analysis…which shows that capital will guarantee loans for nine years because it will be invested and built up. Assuming there will be no default, it will even take longer [than nine years],” KMRC chief executive Johnstone Oltetia said.
“That will give us a lot of time to continue building capital for that entity [KMGT]. We are talking with a number of DFIs because they have an interest because of the impact that it [the scheme] is going to generate.”
KMRC — which is 25.3 percent owned by the taxpayers with remainder of the stake controlled by commercial banks, Saccos, and DFIs — has preliminarily set the target of June 2024 as the operationalisation date for the guarantee scheme.
This will come at a time when some 4,888 houses, funded by the Housing levy development fund, are expected to be ready for occupation, according to the Affordable Housing Board.
The State-built homes comprise social housing units [bed-sitters] targeted at persons earning less than Sh20,000 per month, affordable housing for workers with an income of between Sh20,000 and Sh149,000, and affordable middle-class housing for those earning more than Sh149,000.
Analysts have warned that the implementers of such credit guarantee schemes for the informal sector should tread carefully to avoid a financial crisis in the future due to mass defaults on mortgages similar to the one witnessed in the US between 2007 and 2010 commonly referred to as the subprime mortgage crisis.
The collapse of the American housing bubble amid high interest rates resulted in most borrowers missing repayments, prompting mass closures of businesses because of bankruptcy and sending millions of workers home.
KMRC offers long-term funds to participating banks and saccos at a fixed interest rate of five percent for onward lending to prospective homeowners at single-digit interest rates with a repayment period of up to 25 years.
Mr Oltetia said the majority of defaulters in the mortgage sub-sector are homeowners who buy houses for investment purposes as opposed to occupation.
“People who own homes and occupy will not want to default on those loans especially when they have families living in there,” the KMRC chief said.
“The lower-income people will most likely be occupying those homes and the expectation is that they may potentially don’t want to default unless under some unique circumstances affect them, and in that situation, we have a cover.”
Lending under the guarantee scheme, where KMGT will cover 40 percent of the loan in case of default, has been capped at Sh6 million to lock out high-income earners who can afford mortgages backed by assets and cash flow positions.
President William Ruto has made the construction of affordable houses a priority in his first term in office, pledging to put up 200,000 units every year, funded by a 1.5 percent charge on workers’ monthly pay and matched by employers.
The Kenya Revenue Authority received Sh88.7 billion from housing development levy deductions between August 2023 and December 2024, according to the Affordable Housing Board.
Some 124,000 houses were at different stages of construction in various parts of the country as of February 2025.
