CENTRAL BANK OF KENYA
Remarks by
PROF. NJUGUNA NDUNG’U
GOVERNOR
WORKSHOP ON DEVELOPING KENYA’S
MORTGAGE MARKET
Crowne Plaza, Nairobi
February 17, 2011
Mr. Joseph Kinyua, the Permanent Secretary, Ministry of Finance;
Mr. Johannes Zutt, the World Bank Country Director;

Governor’s Remarks at the Workshop on Developing Kenya’s Mortgage Market – February 17, 2011
Distinguished Guests;
Ladies and Gentlemen:
It is my great pleasure to warmly welcome you all to this important workshop
on developing Kenya’s mortgage market. This is indeed an important market
to develop and focus on. The mortgage market and financing programs are
critical in facilitating the realization of decent housing and expanding cities
in Kenya.
First, I wish to thank the World Bank Group for partnering with the Central
Bank of Kenya in conducting this important study that is informative on the
appropriate policy options geared towards strengthening the mortgage
market in Kenya. Further, I wish to acknowledge our Financial Institutions
for their timely response to the baseline questionnaire survey on mortgage
finance. The survey was intended to provide a snapshot of Kenya’s mortgage
finance market and it has formed a critical input into the report being
released today.
Ladies and Gentlemen: the Kenyan banking system through its
intermediation role remains the key pillar in providing mortgage financing.
Although there is evidently enormous opportunity in the sector, lending to
the building and construction and real estate sector stands at 14.4 percent
(Ksh.133.6 billion as at end of 2010) of the total credit by banks and
mortgage finance companies. The bulk of long-term mortgage financing is
currently funded mainly through short-term savings. The traditional
mismatch constraint therefore comes into play. This requires a well
developed mortgage market to address the long-term funding requirements
of the sector.
Developing mechanisms for long-term finance is also good for monetary
policy transmission. The Monetary Policy Committee has been trying to

Governor’s Remarks at the Workshop on Developing Kenya’s Mortgage Market – February 17, 2011
address the issue of long-term finance and we do hope that the
recommendations from this study together with your contributions will help
formulate solutions to move the mortgage market in Kenya to a higher level
of development.
In 2010, the Central Bank made some policy proposals geared towards
empowering commercial banks to extend more credit to the real estate
sector. The Government accepted these proposals, which resulted to
amendment of the Banking Act and with effect from January 2011. Two
aspects of it are:
i) Mortgage finance companies are now allowed to operate current
accounts, a measure intended to enable them mobilize additional
deposits; and
ii) Banks have been allowed to advance up to 40 percent of their total
deposit liabilities up from 25 percent for purchase, improvement or
alteration of land.
These measures will unlock the sector’s potential by availing funding
required to finance growth of real estate in Kenya. The Central Bank will
continue to work with the sector to improve the operating environment.
Ladies and Gentlemen: The housing sector has a critical role to play in
the achievement of the goals envisaged by Vision 2030. Housing construction
is a labour-intensive activity that will create jobs for the youth and the
unemployed. Construction boom has upstream and downstream activities
and strong linkages with other sectors of the economy. In addition, mortgage
market development supports expanding cities with the accompanying
productivity gains.

Governor’s Remarks at the Workshop on Developing Kenya’s Mortgage Market – February 17, 2011
It is equally important for the players in this niche market to design
innovative ways of securing funds to exploit opportunities available. For
instance, pension funds are needed for guaranteeing members’ mortgages.
This is happening in Kenya, but still at a low scale. Leveraging on such longterm funds will lower costs and make decent and low cost housing available
and affordable to potential borrowers. Also, other investment vehicles such
as unit trusts have the potential of pooling funds required for specific
projects.
The other source of long term finance is the bond market. The success of the
Kenya Government infrastructure bond as well as other corporate bonds that
have followed, demonstrate the enormous potential of this bond market. In
2010 alone the Government mobilized a total of Ksh.179.9 billion through
bond issues, and the infrastructure bonds were oversubscribed every time.
This is a clear testimony of the market’s ability to provide cheaper source of
funding for long-term projects such as mortgages. To further deepen the
bond market, the Central Bank has implemented a number of measures,
including introduction of benchmark bonds and re-opening of these
benchmark bonds to create liquidity and facilitate trading.
This month, the Central Bank has as fiscal agent of the Ministry of Finance,
issued a 30 year Savings Development Bond which is a landmark in the
region. Long-dated Government bonds create a benchmark for issuance of
long-term mortgage bonds. I am encouraged by recent moves by some
players in this market to issue mortgage bonds, but much more potential
remains to be tapped.
Distinguished Guests, Ladies and Gentlemen; With these remarks, it
is now my pleasure to welcome Mr. Joseph Kinyua, the Permanent Secretary,
Ministry of Finance, to make his remarks and officially open this workshop.
Thank you