The Role of Development Financial Institutions in Real Estate in Kenya: A Case of Shelter Afrique

A Project Report by Githua Anthony Ngumi Submitted to the Chandaria School of Business in Partial Fulfilment of the Requirements for the Degree of Masters in Business Administration (MBA)The purpose of the study was to investigate the role of development financial institutions in real estate in Kenya. The research was conducted guided by the following specific objectives: To review the lending policy of Development Finance Institutions (DFIs), to investigate nature of development constraints and to explore alternative approaches to financing real estate in Kenya. A descriptive research methodology using a case study of Shelter Afrique guided the study to address the three research objectives. A census was conducted for the 30 Shelter Afrique’s Kenya clients and the information collected through questionnaires. Once collected, the data was cleaned, coded, analyzed using descriptive statistics with the aid of SPSS and MS Excel, following which inferences were drawn from the analysis of results and the findings provided. Visual aids such as charts and tables were used to aid the reader in understanding the findings. The findings showed that in respect to the adequacy of lending policies of DFIs, majority of Shelter Afrique’s clients are still dissatisfied mostly with the high fees charged and also the composition of the equity ratio. Measures of improving the lending policy were highlighted in the research with flexibility to the changes in the lending policy scoring the highest mean which was followed by the loan approval timelines, better customer care, increase target market and fee reduction. The findings revealed that lending of loans by financial institutions is a risky affair due to the uncertainties revolving around it. With regard to the nature of development constraints, the study found out that majority of the clients experience constraints during the delivery of their objectives. Some of the highly experienced constraints include inefficient professional team, equity mobilization and cost escalations. The study established that most clients have endured a hard time trying to mitigate the constraints. Concerning the alternative approaches to the financing of real estate, the study highlighted practices such as better pricing accompanied by better customer care and improved efficiency as the alternative practices that would motivate the clients of Shelter Afrique to become loyal. Client inclusiveness also stood out as a key motivator for repeat business in terms of capacity building and insight into the business model.The study concluded that the adequacy of DFIs’ lending Policy can only be seen if the DFIs are able to avail a package of services that not only fills the fiscal gap between capital for public good and finance availed by the state on one side and commercial projects on the other, but also pursue to limit the gap in the finance system. The nature of development constraints can be handled if DFIs insist on project teams, that are professional and the contractor are well experienced in the market and that there is no room for errors in the rolling out of the project. In addition, advisory services should be offered to the developers, as a guide or reference point as the move along with the project both on a technical and a regulatory platform. The alternative approaches to financing Real estate can only be adopted if they are cost effective and have a proven track record. The study recommended that to attain adequacy of DFIs lending policies, DFI’s should be able to set limits to safeguard liquidity or alternatively they may choose to comply with limits set by financial regulators and if not actively regulated, be at par with international standards. To be able to have a good approach to development constraints DFIs require sound governance and financial management, an ability to balance cost effective intermediation and risk management with outreach through smart partnerships, capacity building and knowledge management and flexibility. To enhance acceptance of alternative approaches to financing Real Estate, DFIs therefore need to review and analyze their areas of comparative advantage and complement each other rather than compete with the banking institutions. This will go a long way in ensuring that DFIs remain relevant in the market in this turbulent environment