The Effect of Mortgage Refinancing Mechanisms on Mortgage Uptake in Kenya: A Case Study of Kenya Mortgage Refinance Company

Abstract

Kenya’s mortgage market, with a mortgage-to-GDP ratio of 2.2% in 2022, remained among the least penetrated in Africa despite a 2-million-unit housing deficit, raising concerns about the limited effect of the Kenya Mortgage Refinance Company (KMRC) in expanding access to housing finance. Established in 2018 to enhance liquidity and lower mortgage costs, KMRC had only facilitated 26,723 active mortgage accounts by 2022. This study sought to analyze the effect of KMRC’s refinancing mechanisms on mortgage uptake, focusing on the low- and middle-income segments in the Nairobi Metropolitan Area. It examined how KMRC’s interest rate pricing and loan tenure structure influenced mortgage uptake in Kenya, explored the role of capital liquidity provision and risk-sharing mechanisms in enhancing access to housing finance, and assessed how regulatory and institutional factors moderated the relationship between KMRC’s refinancing components and overall mortgage uptake. Anchored in Financial Intermediation, Credit Rationing, and Agency Theories, the study adopted a descriptive–explanatory design within a pragmatic paradigm. The population comprised 34 licensed primary mortgage lenders, from which 30 institutions were selected using stratified sampling. A pretest was conducted on three institutions, which were 10% of the sample, to refine research instruments for clarity, reliability, and validity. Data was collected through a mixed-methods approach using structured questionnaires and institutional documents and analyzed using descriptive statistics and multiple linear regression. The findings revealed that KMRC’s refinancing mechanisms had a statistically significant positive effect on loan accessibility (β = 0.412, p < 0.05), while liquidity support significantly enhanced borrower inclusion (β = 0.367, p < 0.05). Regulatory and institutional bottlenecks, however, negatively moderated account growth (β = –0.298, p < 0.05). Furthermore, stringent eligibility criteria excluded approximately 83% of informal workers from accessing mortgage finance, thereby constraining broader financial inclusion. The study recommended that KMRC revise its interest rate pricing and loan tenure policies to enhance affordability and accessibility for low- and middle-income earners. It also advised strengthening liquidity support and risk-sharing frameworks to boost lender capacity. Furthermore, it suggested regulatory adjustments to reduce institutional bottlenecks and expand mortgage access to the informal sector.