Mortgage lenders look beyond payslips to expand Kenya's housing market

Kibera affordable housing project in Nairobi. [File, Standard]

With a shortage of two million units, an informal workforce of 18.1 million, and an average mortgage size of Sh9 million, one question emerges: How can housing be made affordable?

In essence, those who can afford a roof over their heads, surely, should be able to buy the units they live in if given a chance.

But the population that can afford a mortgage or even rent-to-own arrangements are largely from the formal sector.

It is the reason it has been argued by some industry players that Nairobi is more of a rental market, and not for home buyers.  But maybe this is because financial institutions are only asking for pay slips and bank statements that only the formal sector can provide.

What if your up-to-date water, power or rent bill could convince a financial institution to give you a mortgage?

This is what Kenya Mortgage Refinance Company (KMRC) is proposing. While this proposal is for the end user, for the bank, because this is still a high-risk market, KMRC is setting up the Kenya Mortgage Guarantee Trust (KMGT).

KMGT was unveiled in February 2026 and has been capitalised to a tune of Sh610 million so far. The purpose of this institution is to offer a partial guarantee to mortgage originators who service the low-income populations.

“We already have primary mortgage lenders who have executed their master mortgage guarantee with us,” said Nyale Yanga, KMRC chief finance officer, who said two banks and one Sacco are already on board.

Yanga, while speaking during the Kenya Affordable Housing Conference 2026, suggested solutions that the market can adopt to ensure the informal sector finds a way to own units.

“Use of alternative credit scoring models that consider non-traditional data such as rental payments or utility bills to assess creditworthiness,” reads the presentation by Yanga.

He also suggested that Saccos should be encouraged to use social security as collateral, as he pushed for mobile money statements to be a widely accepted way of assessing borrowers’ ability to pay.

Yanga noted that this is a sector that has a very thin file or no file at all, as they are people with no documented income or whose income levels are cyclical in nature,  not like the formal workers who are guaranteed a certain amount every month.

“How then can we cater for this category of population to ensure they are financially included and uplift their dignity through housing? If you look at their savings, either they have none or very little and that makes it a challenge for them to raise the required down payment,” he said.

Yanga said due to the small size in the income levels of these populations, the mortgage size may also be smaller, which is also attractive to financial institutions.

“Instead of closing one or two mortgages worth x millions, you may have to consolidate quite a number for you to amass scale,” he said. This means a higher administrative cost to collate, and this becomes another constraint for banks to extend mortgage products to this population.

By having the KMGT in place, Yanga believes banks and Saccos would unclench and extend finance to the larger population of the informal sector and first-time home buyers.

The entity, which will be membership-based, will partially cushion the primary mortgage lender from possible loss in case the customer defaults. The guarantee cover ratio has been set at 40 per cent and the maximum loan size at Sh4 million.

Default is failure to meet three consecutive cycles of payments.

With these risk-averting strategies, financial institutions seem to be warming up to the idea of extending mortgages to the informal sector.

George Laboso, senior manager for Affordable Housing at KCB Bank, said the institution has made it possible for the informal sector to own homes.

“In fact, one of the things we have done is, we have said you do not need to bring books of accounts because we know in the informal sector, people do not have proper records,” he said. “You can walk in with your bank or M-PESA statements as long as you can prove there is something you are getting from your business.”

It is the same strategy that Unaitas Sacco has adopted, as explained by Kennedy Karinga, chief manager for products and innovation.

“Some of these people have not banked anywhere, so we can use their mobile banking history,” he said.

But Unaitas has gone further by utilising behavioural analysis as an index of creditworthiness.

“We have been forced to do behavioural analysis. This could include things like home visits,” he said. “We want to interview the customer, for example, with the spouse so that we see if they are aligned. We have also been able to combine incomes to have them qualify.”