Mortgage solution backed by market a win for home owners

Silvana Kaparo is a banker.

It is an old wisdom that the best way to help people is by helping them help themselves. While the sentence is a bit cumbersome, the idea behind it teaches us a lot about the human spirit and should be internalised by anyone who wants to be truly successful.

We all react differently to presents than we do to the toil of our hard work. Just think about the free party regalia you receive compared to this shirt whose design and colour you just really like. It is obvious which one is cherished dearly – it’s not the one you got for free.

Similarly, it is more fulfilling to earn a high grade in university by studying than by cheating. The main difference might be that you have proven to yourself that you are in control, and able to overcome challenges in front of you. Like reaching the top of Mt Kenya, the feeling is just exhilarating.

A government should work in the same way. It is important to remember that only relatively recently, a system of government was widespread around the world in which a main tenant simply handed the citizens everything they might need or desire. I am speaking, of course, of communism. This experiment in human history tragically failed.

In the Soviet Union, the government provided the tools to mechanics so they could fix agricultural equipment in the field. But because they had no sense of ownership over these tools, the mechanics would just throw them away instead of carrying them home. Why burden oneself when there will be a new wrench waiting for you tomorrow, at no extra cost?

That is why the recently announced Kenya Mortgage Refinance Company (KMRC) is both smart and effective. The company’s goal is to increase the number of mortgages to 60,000 by the year 2022 – a massive increase from the current 22,000.

While until now one could not apply for a mortgage without a “formal salary”, this initiative will finally allow a huge portion of our population to take a mortgage and fulfill their dream of owning a home.

Public good

As this company is largely government-owned, its main objective is not profit, but rather the greater public good. As such, it will be able to provide long-term funding at a fixed rate, without exposing citizens to the risk of the volatile mortgage market that could end up costing them serious sums of money, or could even lead to the loss of their home.

At the same time, there is little chance that the KMRC will end up like so many other government programmes, drowned in inefficiency and corruption. Direct government intervention is a necessary evil that should be used like harsh medicine – rarely and in moderation. Whenever a market solution can be found, it should be the preferred option. The free market understands the needs and wishes of the population better and is faster to adapt to changing circumstances.

Instead of building houses which would be inadequate and of low quality, President Uhuru Kenyatta’s administration is tackling the source of the problem rather than the symptom. It is using the resources of the Treasury to provide a disenfranchised population access to loans, which then finance the construction of new houses, truly empowering Kenyans who face economic challenges.

As loans are repaid, there is no further burden to the national debt – instead, the state will receive profits from the interest rates.

KMRC is supported by the World Bank and African Development Bank, bodies that only support endeavours in which they truly believe. Furthermore, international oversight means it will be almost impossible for corrupt officials to embezzle funds out of the pockets of hard-working Kenyans.

Job creation

Another positive effect is job creation due to sudden increase of demand. Building 60,000 housing units requires skilled workers, equipment and transportation of building material. It will provide respectable work for thousands of young Kenyans yearning to put their skills to good use. As this takes off, they will be able to feed their families and even apply for a mortgage of their own.

By opening up the mortgage market to those who need it most, the government took a big step in the right direction towards fulfilling Uhuru’s promise of affordable housing for all.

The market solution of KMRC is a win-win for all.
 - The writer is a banker