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Chase Bank subsidiary bets big on mortgage loans

February 17, 2014


Chase Bank's subsidiary Rafiki Microfinance has set aside Sh800 million for giving mortgage loans as low as Sh20,000 for home repairs and up to Sh5 million for first-time builders.

The micro financier said Monday it had loaned out a total of Sh2 billion since its formation two years ago, out of which Sh300 million was lent to mortgage borrowers.

On Monday Rafiki Microfinance Bank signed a Sh100 million loan from Pan African mortgage company Shelter Afrique for onward lending to the real estate sector.

"I have set aside over Sh700 million in addition to this funding partnership to support our new home owners," said Rafiki CEO Daniel Mavindu at the signing Monday.

The lender will disburse the loans at a fixed rate of 18 per cent, which is at par with commercial bank rates.

Biggest hindrance

The high cost of mortgage loans has been cited as the biggest hindrance to the supply of homes to middle and low income earners.

As at December 2012 there were 19,177 outstanding mortgage loans in the banking sector of an average size of Sh6.4 million each.

Annual demand for housing is estimated at over 300,000 units, with supply coming in at less than half of this figure.

Apart from Shelter Afrique, Rafiki Microfinance Bank has also borrowed from development agencies and private equity funds such as ResponsAbility Participations AG.

Management of the lender said it was in the process of signing more loans that will see its borrowed funds grow to Sh2.2 billion by end of year. Rafiki has a deposit base of Sh1.7 billion.

Most banks do not offer fixed rates, exposing homeowners to fluctuations in monthly repayments as was the case in the period 2010-2012 when interest rates shot up. Banks attribute the high cost of mortgage loans to lack of long-term funds as most of their customers hold money with them for short periods.

Shelter Afrique has raised long term funds through bonds and loans to help it deal with this challenge.

In December it received a Sh436 million loan for onward lending to 4,000 micro-borrowers. The lender also issued a Sh3.5 billion corporate bond that was oversubscribed by 43 per cent with a greenshoe option allowing it to absorb Sh5 billion.

The bond paid investors a fixed rate of return at 12.5 per cent or a floating rate pegged on the 182-day Treasury bill rate with a margin of 1.5 per cent.

Microfinance banks have had to entice savers with higher rewards than those of banks to attract deposits, putting them at a disadvantage in pricing of their loan products.

This has made borrowing more costly. Faulu Kenya and Kenya Women microfinances have been running promotions promising returns of up to 12 per cent for fixed deposit accounts.

Rafiki is fully owned by Chase Bank, a small lender which in March last year was bought into by French-based Amethis Finance, Swiss ResponsAbility Participations AG and Germany's DEG.

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Source: Business Daily (Kenya)

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