The Treasury has increased the mortgage ceiling for members of Parliament by Sh5 million each, the latest concession by the Executive to MPs as it seeks to unlock the stalemate over the Finance Bill, which gives the government authority to collect taxes.
An amendment to the Parliamentary Management Scheme Fund Regulations 2011 gazetted by former Finance minister Uhuru Kenyatta at the beginning of the year means that mortgage loans for MPs will increase to Sh20 million up from Sh15 million each.
“A member of the Tenth Parliament shall be eligible for a further loan not exceeding the sum of five million shillings, which shall be repayable on or before the 30th day of June, 2012 or two months before the General Election whichever date is later,” the amendment reads.
The wording of the amendment suggests that it was crafted with an August 2012 election date in mind as contained in the Constitution.
The actual date, however, has since been mired in legal arguments with the High Court recently ruling that the elections can be held as late as March 2013 unless the coalition is dissolved to pave the way for earlier polls.
That technically means that the MPs will have a longer time to repay the supplementary mortgage, giving them a grace period in terms of monthly repayments and in the actual cost of money.
Average mortgage interest rates have increased to around 19 per cent in tandem with the austerity measures announced last October, which raised the benchmark Central Bank Rate from 11 per cent to 18 per cent.
The drastic measures were caused by a weakening shilling and rapid surge in the inflation rate.
This saw average commercial bank interest rates surge from 15 per cent to more than 25 per cent currently.
Kwame Owino, CEO of the Institute of Economic Affairs, said the latest amendment was a deliberate move by the Treasury to gift MPs with cheaper loans in their final year in office.
“The timing of the increment notwithstanding, legislators are being insincere when they claim that high interest rates are hurting the public while on the other end they gift themselves such benefits,” he said.
Loans under the scheme are charged an interest rate of three per cent per year, a discounted rate made possible because MPs are exempted from paying the low interest benefit tax, which is pegged on prevailing Treasury bill rates for the previous six months.
The discounted loans will come as a bonus to the legislators who are entitled to a winding up allowance of Sh300,000 per year served, meaning they will each get Sh1.5 million when Parliament is dissolved.
While the dollar has improved relative to the shilling and inflation too coming down to 18.93 per cent, interest rates for borrowers have all but remained high. Banks have had to renegotiate loan repayment with customers to avert massive defaults.
“Given the economic difficulties in the country, financing of public offices should be steering away from gratuitous payments and benefits,” Mr Owino said.
The initial mortgage of Sh15 million was set by a tribunal appointed by the Parliamentary Service Commission and chaired by retired judge Akilano Akiwumi, but MPs have since tried to raise it.
In November, the Parliamentary Mortgage Committee sought to make the change in view of the progressively rising property prices.
Peter Maikoki, Parliament’s head of mortgage and car loans department, said the revision in loan amounts was intended to create a larger revolving fund ahead of an expected larger Parliament after the next election.
However, he said, the expanded loan book would require more injections into the fund at a time when the government is hard-pressed to meet its Budget needs.
“That number would inevitably require that the fund, which stands at Sh2 billion, be increased to around Sh8 billion if it is to remain operational,” Mr Maikoki said.
Creation of new constituencies and election of senators and women representatives under the new Constitution are expected to increase the number of MPs to at least 417.
The increased mortgage is the second win for MPs in their quest for decent shelter at the taxpayer’s expense.
In November, an amendment to the scheme fund allowed MPs who did not have security for the mortgage to use part of their mortgage to acquire land for development.
Previously, the fund could only be accessed if a member wanted to buy an already existing building or to build on a piece of land already owned by the member.
“This is legal and immoral,” said Paul Muite, a former MP.
The parliamentarians’ mortgage scheme gives Nairobi preference over other towns, with borrowers intending to develop homes within the metropolitan area getting up to 90 per cent of financing on the property value. Those who invest in other parts of the country get 80 per cent.
The fund also benefits Parliamentary Service Commission (PSC) staff with the loan amount being determined by the job group. Under the scheme, the Clerk of the National Assembly and his deputy each get Sh10 million while directors and heads of departments are entitled to Sh8 million each.
The lowest ranked employees under the PSC, get Sh2.5 million while drivers and clerical officers get Sh2.8 million.
However, the amendments restrict the amount of money MPs can borrow for buying land to 40 per cent of their entitlement or Sh8 million.
Kenya’s annual demand for houses is estimated at 200,000 units whereas the market can only supply 30,000 units, leaving a shortfall of 120,000 per year, especially in the lower sections of the market.
The real estate industry has led other sectors of the economy in borrowing from commercial banks, with the amount tripling as developers took loans to invest in the lucrative homes market.
However, CBK data shows that only 2,255 new mortgage accounts were opened in the 13 months to June 2011, reflecting the aversion for home loans.