Premium Essay

The Mortgage Industry in Kenya

In: Business and Management

Submitted By sonea
Words 509
Pages 3
A mortgage is a debt instrument that is secured by the collateral of specified real estate property and that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large purchases of real estate without paying the entire value of the purchase up front.
Mortgages in Kenya fall under two types, that is,
a. Fixed rate mortgages
The borrower will owe a percentage of the loan as interest. This amount never changes and remains constant over the life of the loan.
b. Variable/Adjustable rate mortgages
In this type of loan, changes in the credit market are reflected in the repayment rates. Equal repayments are made on a reducing balance. Part of the interest rate risk is transferred from the lender to the borrower. Variable rate mortgages are widely used where fixed rate funding is difficult to obtain or prohibitively expensive.
There are several factors that broadly define the characteristics of mortgages in Kenya and elsewhere globally. These may include; * Interest – this is what banks gain from the loan from the repayments made. Interest may be fixed over the life of the loan or it may be variable, changing at certain predetermined periods. It may rise or it may fall, depending on existing market conditions. * Prepaid amounts – some lenders will limit or restrict prepayment of part or the entire loan. If the borrower decides to prepay, then he may also pay a penalty to the lender for the prepayment. * Amount and frequency of payment – in some cases, lenders may offer the borrower an option to increase or decrease the amount paid, without incurring penalties. The amount paid per period is variable. * Period of the loan – this refers to the time period the loan is lent out for. The borrower may be required to pay the entire amount after that lapsed time period. He may also be...

Similar Documents

Premium Essay

Determinats of Mortgage Rates

...------------------------------------------------- Kenya School of Monetary Studies TERM PAPER DETERMINANTS OF MORTGAGE INTEREST RATES IN KENYA PREPARED BY: * MBURU LEONARD GATHUNGU HD336-040-0040-2012 * TAYARI AMOS MATANGA HD336-040-0043-2012 * KIBET JOSHUA HD336-040-0044-2012 SUBMITTED TO: * DR. NYAMONGO Abstract This paper provides an analysis of the determinants of mortgage rates in Kenya. The study was restricted to the period 2006-2012 quarterly data. During the analysis, mortgage rates were regressed against the CBR rate, inflation, bond rate and Household income for the period under study. The study utilized the Ordinary Least Squares method of econometric estimation to estimate the model. This method is chosen because of its simple and straightforward ability to show the linear relationship among Mortgage Rates, bond rates, inflation, Household income and CBR rate. The regression was done on the logs of the data variables because they change by rates other than certain amounts; this made it logical to take logs because the regression was to seek a linear relationship. From the results it can be concluded that bond rates and inflation had a negative influence on Mortgage rates in Kenya for the period under study. CBR rate and Household income depicted a positive influence on the same. This led to the conclusion from the study that CBR rate and Household income had direct influence on the mortgage rate than inflation and bond rates;......

Words: 2582 - Pages: 11

Premium Essay

Kcb Group Profile

... the Bank extended its operations to Nairobi, which had become the Headquarters of the expanding railway line to Uganda. The next major change in the Bank’s history came in 1958. Grind lays Bank merged with the National Bank of India to form the National and Grind lays Bank (KCB, 2008). Upon independence the Government of Kenya acquired 60% shareholding in National & Grind lays Bank in an effort to bring banking closer to the majority of Kenyans. In 1970, the Government acquired 100% of the shares to take full control of the largest commercial bank in Kenya. National and Grind lays Bank was renamed Kenya Commercial Bank (KCB, 2008). In 1972, Savings & Loan (K) Ltd was acquired to specialize in mortgage finance. In 1997, another subsidiary, Kenya Commercial Bank (Tanzania) Limited was incorporated in Dar-salaam, Tanzania to provide banking services and promote cross-border trading. Since then, three branches, namely, Dar es Salaam, Arusha and Mwanza, have been opened. Today, KCB Group has the widest network of outlets comprising of over 145 branches across the region and over 280 Automated Teller Machines (ATM). KCB Bank Group is composed of Kenya Commercial Bank, a Commercial Bank; S&L, a...

Words: 5596 - Pages: 23

Premium Essay

Consultants Marketting Report for Anu

...collected through an in-depth interview with the senior management of Equity Bank Limited –Embu Branch using an interview guide, while secondary data was obtained from the National Bank library as well as other studies carried out in the banking sector e.g. Wandate, (2012), Gatome (2012), Njagi, L. & Kombo, H. (2014), Githagui, (2014), Mutua, (2013). Banking Industry in Kenya Competition among commercial banks in Kenya is quite stiff and most players have attained competitive advantages through product and service differentiation in terms of cost and customer experiences Banks have also invested heavily in technological products, processes and institutional changes. Banks have invested in training programmes and employee empowerment practices. Commercial banks in Kenya are in very stiff competition and have almost uniformly adopted competitive strategies ranging from superior products and services, technological assets, high quality of human resources and responsiveness to the business environment. During the period to February 2008, the banking sector comprised 142 institutions namely 43 commercial banks, 2 mortgage finance companies and 97...

Words: 2936 - Pages: 12

Premium Essay

Commercial Banking

...EGERTON UNIVERSITY TOWN CAMPUS FACULTY OF COMMERCE DEPARTMENT OF ACCOUNTING, FINANCE & MANAGEMENT SCIENCE NAME: OCHIENG JARED OPONDO REG NO: C12/60275/09 GROUP: A FACULTY: COMMERCE COURSE: BCOM 330; Financial Institutions and markets TASK: TERM PAPER TITLE: COMMERCIAL BANKING IN KENYA PRESENTED TO: MRS. BOSIRE MARY PRESENTED ON: 19TH October 2011 ABSTRACT: This term paper analyses the commercial banking system in Kenya. In particular it focuses on the history of commercial banks from a general perspective then narrows down to Kenya’s context. It looks at the importance of commercial banks in Kenya, the roles/functions of commercial banks. It then focuses on the regulations that govern the commercial banks. Lastly it looks at the contribution of commercial banks to Kenya’s economy. TABLE OF CONTENTS Abstract 2 Table of contents 3 Introduction 4 The history and development of commercial banks 5 Importance of commercial banks 9 Roles of commercial banks 10 Regulations of commercial banks 13 Contribution of commercial banks to Kenya’s economy 14 Emerging trends in banking 17 Summary 18 References 18 INTRODUCTION A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are......

Words: 4777 - Pages: 20

Free Essay

Effects Credit Rating on Loan Approvals

...AN INVESTIGATION INTO HOW CREDIT RATING AFFECTS LOAN APPROVALS IN COMMERCIAL BANKS. MARCH 2013 “A research project proposal submitted to the school of business and public management in partial fulfillment of the requirement for the award of the degree of bachelor if commerce finance option in KCA University.” TABLE OF CONTENTS pages DECLARATION 3 CHAPTER ONE 3 1.0 Introduction 3 1.1 Background 3 1.2 Statement of the problem 3 1.3 Research objectives 3 1.4 Research questions 3 1.5 Importance of the study 3 CHAPTER TWO: Literature review 3 2.0 Introduction 3 2.1 Literature review Error! Bookmark not defined. 2.2 Chapter summary 3 CHAPTER THREE: Research methodology 3 3.0 Introduction 3 3.1 Research Design 3 3.2 Population and sample 3 3.3 Data Collection Methods 3 3.4 Data Analysis 3 REFERENCES 3 APPENDIX ONE: Questionnaires Error! Bookmark not defined. APPENDIX TWO: List of Kenyan Banks in the study 3 CHAPTER ONE 1.0 Introduction Credit rating has been defined in different ways: Admin (2008) defines it as the degree of credit worthiness assigned to an individual based on the credit history and financial status. Credit rating also assesses the credit worthiness of a country and corporation. It helps lenders or investors to know if the subject will be able to pay back a loan and can also be used to adjust the insurance premium, to determine......

Words: 4336 - Pages: 18

Premium Essay

Assess the Efficacy of the Constitutional Provisions and the New Framework Legislation on Agriculture in the Attainment of the Ideals of Kenya’s Vision 2030.

...AGRICULTURAL LAW AEC304 CONVENOR – Felix Odimmasi OBJECTIVES OF THE COURSE The course is intended to help the student to explore the legal environment of Agricultural Law by providing a comprehensive survey of the development and regulation of legislation and doctrines which affect the development of Agriculture as a distinct driver of the economy in Kenya. CONDUCT OF THE COURSE The course shall consist of both coursework and examination. The coursework will be in the form of a researched seminar presentation, a term paper and a continuous assessment test each constituting 10% of the final mark, thus a total of 30% of the total mark. The exam will constitute the remaining 70%. COURSE CONTENT | |TOPIC |WEEK |COMMENT | |1 |Nature and sources of Kenyan Law | | | | |Definition and Classification of Law | | | | |Sources of Law | | | | |Law making processes | | | | |Administration of the Law ...

Words: 46643 - Pages: 187

Premium Essay

Favorite Brands Paper

...following questions: • Is the company successful in building loyal customer relationships across different groups? • Why or why not? • Identify at least two other competitors in the same industry, and explain why you prefer your selected brand over the competitors. Equity Bank Equity Bank, a Kenyan based financial services company is an organization that I am so passionate about in the banking industry. The bank was started in 1984 as Equity Building Society (EBS) and it used to provide finances for mortgage to most of its customers who fell in the low income earners bracket. The bank is led by a board of directors headed by the famous chairman; peter Munga and the group’s chief executive officer Dr. James Mwangi (Allen, 2013). I like this brand because of several reasons as outlined below 1. Leadership The bank is managed by an experienced board of directors who ensure that there is consistency in customer satisfaction and adequate innovation which results to efficiency. In November 2013, the company’s chairman Peter Munga was titled Chairman of the Year in the 4th edition of the annual Capital Markets Awards. He was commended for setting the vision, which developed into Equity Bank as well as encouraging inclusivity in the financial industry. In October the very same year, the group Managing Director and CEO Dr. James Mwangi scooped the prestigious African Business Leader of the Year by Africa Investor (Allen, 2013). The award is given to the......

Words: 922 - Pages: 4

Premium Essay

Case Study on Mini Hydro Power Plant & a Tea Factory

...AccountingExplained * Financial Accounting * Managerial Accounting * Miscellaneous ------------------------------------------------- Top of Form Bottom of Form Home >Managerial Accounting >Capital Budgeting > Payback Period | | | Payback Period Payback period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques. Formula The formula to calculate payback period of a project depends on whether the cash flow per period from the project is even or uneven. In case they are even, the formula to calculate payback period is: Payback Period = | Initial Investment | | Cash Inflow per Period | When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula for payback period: Payback Period = A + | B | | C | In the above formula, A is the last period with a negative cumulative cash flow; B is the absolute value of cumulative cash flow at the end of the period A; C is the total cash flow during the period after A Both of the above situations are applied in the following examples. Decision Rule Accept the project only if its payback period is LESS than the target payback period. Examples Example 1: Even Cash Flows Company C is planning to undertake a project requiring initial investment of $105 million. The project is......

Words: 2091 - Pages: 9

Premium Essay

Financial Management

...Is Kenya ripe for securitization of real estate? Defination of securitization Securitisation is the issuance of debt certificates that are secured by cash flows from different kinds of assets. The issued securities are called Asset-Backed Securities (ABS). In essence a pool of payment claims are packaged and are made to securities in order to create a secondary market for the underlying receivables or other various illiquid assets. Securitisation is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS). Therefore, securitization of real estate is the pooling of real estate assets as underlying assets securing a debt, which is issued to investors in return for cash flows from the underlying real estate assets. The illiquid real estate assets that generate a constant cash flow are formed into a tradable security and are floated on the debt market. Securitization process In its most basic form, the process involves two steps. 1. A company with......

Words: 2716 - Pages: 11

Premium Essay

Financial Crisis Term Paper

...The Great Recession: The Financial Crisis of 2008 Table of Contents: I. Introduction......................................3 II. Cause & Effect of the Housing Bubble..............3 III. Financial Industry................................5 IV. Global Contagion..................................6 a. European Sovereign Debt Crisis of 2007-2008.....7 V. LIBOR.............................................8 b. LIBOR & the Crisis in Lending...................8 VI. Unemployment......................................9 VII. United States Stock Market.......................10 VIII. Laws & Resolutions...............................10 c. Dodd-Frank Wall Street Reform & Consumer.......11 Protection Act Timeline d. Dodd-Frank Wall Street & Reform Consumer.......11 Protection Act e. European Laws & Resolutions....................11 IX. Conclusion.......................................12 Introduction The financial crisis of 2007-2008 is considered to be the worst financial crisis since the Great Depression in 1929. Not only were some of the largest firms in the world threatened but also, the normal lives of everyday people faced great challenges as the entire financial market and banking industry was damaged. The prevention of the folding of these firms was backed with bailouts from national governments and banks. The crisis was the cause of business declines, foreclosures on homes, evictions, and......

Words: 4323 - Pages: 18

Premium Essay

Fallacy of Taking Development to the People

...American International Journal of Contemporary Research Vol. 4 No. 1; January 2014 Kenya’s Social Development Proposals and Challenges: Review of Kenya Vision 2030 First Medium-Term Plan, 2008-2012 Ezekiel Mbitha Mwenzwa Department of Social Sciences Karatina University P. O. Box 1951, Karatina, Kenya. Joseph Akuma Misati Department of Sociology Maasai Mara University P. O. Box 861 20500, Narok, Kenya. Abstract Kenya faces several development challenges including poverty, disease, unemployment, negative civic engagement among others. The development bottlenecks worsened following the introduction of the IMF/World Bank-propelled Structural Adjustment Programmes (SAPs) of the late 1970s and early 1980s. While the SAPs had envisaged benefits, they largely became part of the problem rather than the solution to development in Kenya. Accompanying these were negative civic engagements, particularly, ethnic conflict and political maladministration especially after the re-introduction of multiparty politics in the early 1990s. These drawbacks notwithstanding, development planning went on culminating in the Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC) 2003-2007 in 2002 and its successor, the Kenya Vision 2030 in 2007. While the former was implemented, the latter is on course with the First Five Year Medium-Term Plan running from 2008 to 2012 recently concluded. The blueprint is driven by three pillars, namely; The economic, social......

Words: 5661 - Pages: 23

Premium Essay

Research Proposal

...FACTORS AFFECTING PERFORMANCE OF COMMERCIAL BANKS IN KENYA BY MAURICE MUIRURI KAARIUKI A RESEARCH PROPOSAL SUBMITTED TO THE SCHOOL OF BUSINESS IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTERS IN BUSINESS ADMINISTRATION, DEGREE OF KENYATTA UNIVERSITY. JULY, 2014 DECLARATION Declaration by the Researcher This research is my original work and has not been presented for a degree in any other University. No part of this study may be reproduced without prior authority of the author and/or Kenyatta University. Signature……………………………………………………… Date………………………. Maurice Muiruri Kariuki Declaration by the Supervisor This research proposal has been submitted for examination with my approval as the university supervisor. Signature……………………………………………………… Date………………………. Name (PhD.) School of Business ACKNOWLEDGEMENT I take this opportunity to express my gratitude and regards to Professor name (PhD.) for his guidance. I am indebted to all the persons and institutions that offered support, encouragement and prayers to me during the entire research. Lastly, I thank almighty, my parents, brother, sisters and friends for their constant encouragement without which this assignment would not be possible.   ABSTRACT The study seeks to investigate the factors affecting performance of commercial banks in Kenya. The Background of the study reveals that there has been continued globalization and economic cooperation among......

Words: 10187 - Pages: 41

Premium Essay

Vision 2030 Brochure

...Kenya Vision 2030 REPUBLIC OF KENYA July - August, 2007 This publication is a summary of Kenya’s new long-term national planning strategy, officially known as Kenya Vision 2030. The publication briefly states the main goals of the Economic, Social and Political pillars that underpin the Vision 2030. It also provides a run-down of major, (or flagship) projects to be embarked upon in the Medium Term period of the Vision, i.e from 2008-2012. The final version of Vision 2030 will be completed after this and other consultations. Kenya Vision 2030 THE CONTEXT OF KENYA VISION 2030 Kenya Vision 2030 is the new country’s development blueprint covering the period 2008 to 2030. It aims at making Kenya a newly industrializing, “middle income country providing high quality life for all its citizens by the year 2030”. The Vision has been developed through an all-inclusive stakeholder consultative process, involving Kenyans from all parts of the country. The vision is based on three “pillars” namely; the economic pillar, the social pillar and the political pillar. This vision’s programme plan comes after the successful implementation of the Economic Recovery Strategy for Wealth and Employment Creation (ERS) which has seen the country’s economy back on the path to rapid growth since 2002, when GDP grew at 0.6% rising to 6.1% in 2006. The relationships between the pillars can be seen in Exhibit One below. The economic pillar aims at providing prosperity...

Words: 7145 - Pages: 29

Premium Essay


...Case Study on Barclays Bank Introduction This case study paper will analyze the economics of Barclays, one of the largest financial providers in the UK and in the world. It will also use Barclay’s example to illustrate the peculiarities of banking industry functioning. Overview of the Business Barclays is an international financial services provider operating in more than 50 countries and serving more than 42 million customers worldwide. It engages in commercial banking, investment banking, wealth management and asset management. Its commercial banking arm offers services to British and international customers, including current accounts, savings accounts, mortgages, insurance, credit cards and consumer loans. It has a majority stake in Absa, a major South African bank. It has recently acquired Russia’s Expobank and announced its intention to buy Indonesia’s Akita. Barclays’ investment banking and investment management business cluster consists of Barclays Capital, Barclays Wealth and Barclays Global Investors. Barclays Capital is an investment bank that also offers consultancy, financing and risk management services. Barclays Wealth provides private banking, asset management, stockbroking, offshore banking, wealth structuring and financial planning services. Barclays Global Investors is one of the world’s largest asset managers and providers of investment management products and services. Barclays’ net income amounted to £23,000 million in 2007, up from £17,333 two......

Words: 1580 - Pages: 7

Premium Essay

Effect of Technological Change on the Profitability of Financial Institutions in Kenya

...CHAPTER ONE INTRODUCTION 1.1 Background The turbulence with which organizations and individuals operate in today’s life leaves changes as the only constant. It is paramount to note that individuals and institutions that choose to meddle through turbulence find it very difficult to survive. Indeed there are many reasons that inspire change. According to McKinley survey on change management (2006) organizations will change to reduce costs, to move from a good performance to a great performance, turn around a crisis situation, and catch up with rivals or to direct part of the organization. In doing so according to Davis and Holland (2006) organizations use systematic methods to ensure that the organizational change is guided in a planned direction, conducted in a cost effective manner and completed within a targeted time frame with desired results. Further Todd A (2008) focuses on the people aspect by arguing that change management is a structured and systematic approach of achieving a sustained change in human behavior within an organization. The success of implementing change is generally associated with those who facilitate the change process. The change agent is defined here as a manager who seeks “to reconfigure an organizations roles, responsibilities, structures, outputs, processes, systems, technology or other resources” (Buchanan and Badham, 1999) in the light of improving organizational effectiveness. The role of...

Words: 11835 - Pages: 48