KCB Targets Informal Workers in New Mortgage Plan Without Payslips
KCB Bank is going back to the drawing board on who qualifies for a home loan – and this time they’re thinking beyond the old ‘payslip gang’.
A move that could go on to quietly turn the housing market in Kenya on its head, the lender is switching up its mortgage model to target small business owners, people working informally and those scraping by on the gig economy. Rather than relying on all that boring old formal employment record stuff, KCB plans to use transaction data and what people do with their money to decide who gets the loan.
It’s a pretty big deal, especially given that the majority of Kenya’s population aren’t exactly raking it in on a fixed monthly salary.
A System That Left Many Locked Out
Ever since mortgages first became a thing in Kenya, one thing has always been the main hurdle: a steady payslip. But that’s been the problem all along.
Only a tiny fraction of Kenyans manage to meet that particular benchmark, and for that reason mortgage uptake has pretty much stayed stuck at about three per cent. You can probably guess why – most people who could be homeowners operate outside of formal employment.
A pretty damning report from Zamara a bit back, along with the Centre for Affordable Housing Finance in Africa and Financial Sector Deepening Kenya paints a pretty stark picture. It turns out that just four per cent of Kenyans can afford to take out a Sh10 million mortgage. And that works out to just 6,146 individuals of the over 145,000 pension scheme members they surveyed.
So what does that leave the rest of us with? Well, basically just locked out, to all intents and purposes.
A Different Way to Measure Creditworthiness
KCB’s attempt to break this mould is to change the way people qualify for a mortgage.
No more asking for payslips, KCB will now rather look at how people actually earn and manage their money – and that includes mobile money, bank statements, what they save, and just how steady their income is over time.
It’s less about where you work – and way more about how you handle your finances.
Talking to KCB Bank Kenya’s Director of Mortgage Business, Caroline Wanjeri, and she says that for a long time, Kenya’s mortgage uptake has all been concentrated among those with steady jobs and decent incomes. This has basically been stifling home loans uptake.
“For years, more than 80 per cent of Kenya’s workforce has been operating in the informal sector, so the new mortgage solution we’re putting in place is all about increasing financial inclusion, making credit assessments way less rigid, and generally making it easier for more people to become homeowners,” Wanjeri said.
What the New Loans Will Look Like
Under this model, borrowers can get their hands on loans ranging from Sh1 million to Sh4 million – and they can repay them over up to 15 years with interest rates that don’t break the bank. Kept in single digits, that is.
On paper, it looks like a deliberate effort to make mortgages way more accessible – especially for the people who’ve historically been left out of the loop.
And don’t get it twisted, KCB is far from being the only bank that’s come up with this idea – across the industry, there’s growing pressure to come up with new lending opportunities. That’s because demand is slowing way down in the traditional markets.
Tapping Into an Overlooked Majority
The informal sector is where more than 80 per cent of Kenya’s workforce come from. That’s a heck of a lot of potential borrowers – a lot of whom have steady incomes even if those incomes aren’t properly documented on paper.
For the lenders out there, it’s a bit of a tough spot – but also a chance to shake things up.
“What we are doing with this is acknowledging that Kenya’s economy runs on entrepreneurship. By looking past the paperwork and using alternative ways to figure out who’s a good bet we can finally make mortgage financing available to people who deserve to own a home – but have been locked out by the traditional rules,” Wanjeri put it simply.
That’s a pretty good summing up of the shift in thinking that’s happening – that you don’t need a mountain of paperwork to be financially reliable.
Housing Demand Keeps Rising
But all the same, Kenya’s housing shortage just isn’t going away.
Urbanisation is growing at a rate of about 4.4 per cent every year, and that’s pushing more and more people out into the cities and increasing demand for some affordable housing options. But the supply – and the financing to go along with it – has been lagging way behind.
Even when we’ve tried to make it easier for people to get into low-cost housing loans in the past, the uptake has just been really slow. The requirements were too tough and the borrowing costs were just too high for a lot of people.
Policy Goals vs Reality
Affordable housing is a key part of the Third Medium Term Plan (MTP III) that we’re supposed to be working towards under Vision 2030 2018–2022. And what it says is that we want to support inclusive growth while we improve people’s living standards.
But we’ve been having a bit of trouble making progress.
Not enough investment in new homes, climbing construction costs and declining affordability – they’re all making it harder for both the developers and the buyers to play their part in the market.
KCB’s new strategy doesn’t solve all the issues – but it just might open up a door that we’ve had closed for way too long.
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KCB Targets Informal Workers in New Mortgage Plan Without Payslips
