Ulaanbaatar, Mongolia, September 15, 2020
- A new agreement between IFC, a member of the World Bank Group, and the
Mongolian Bankers Association (MBA) will help improve access to funding
for 200,000 micro, small and medium enterprises (MSMEs) cumulatively over
the next 5 years by developing a vibrant market for value chain finance
Access to finance is a challenge faced by
many Mongolian MSMEs, which struggle to obtain bank loans to sustain and
expand their operations, as they do not own land or buildings that financial
institutions generally seek as collateral. Value chain financing (VCF)
is an innovative way to unlock additional funding for MSMEs as it allows
them to leverage the higher credit standing of a larger buyer or seller
to borrow from financial institutions. It could also enable them to take
longer-term orders and be more resilient to short-term shocks.
“At a time when enterprises of all sizes
are being impacted by COVID-19, it’s important to look at new ways to
help small and medium sized enterprises. In Mongolia, this is particularly
relevant to areas like livestock and agriculture, as businesses in these
sectors need more support to obtain finance to expand and create jobs,”
said Rufat Alimardanov, IFC Resident Representative for Mongolia.
This move complements the government of Mongolia’s
ongoing efforts to increase the competitiveness and exports of its agriculture
value chains. These are seasonal businesses; and operators typically require
liquidity support to handle cash cycles as well as asset financing to expand
operations. Their demands can be best met with VCF.
Mongolia already has the necessary basic foundations
to develop VCF as IFC's previous Mongolia Secured Transactions Reform (STR)
project has successfully put in place a Secured Transactions law, a collateral
registry and the initial capacities in movable asset lending.
However, value chain finance providers also
need to deal with different actors and service operators, which may not
be financial institutions. Thus, an effective VCF market needs common understandings,
capacities and operating infrastructures across the market spectrum. Together
with MBA, IFC intends to support partners and stakeholders to develop the
required capacities and ecosystem in Mongolia.
“The timing to sign this Cooperation Agreement
is very auspicious as it will help realize some of the most critical implementation
objectives of the recently adopted Loan Interest Rate Reduction Strategy
document, which is the ruling policy to develop and shift the Mongolian
financial sector towards more stable and inclusive growth in the short
and medium term,” said Medree Balbar, president of the MBA.
IFC has supported the development of movable
asset finance markets in more than 40 emerging markets including Columbia,
China, Ghana and Vietnam. VCF is a main segment of this market and it’s
an organized way of business financing, which leverages receivables, inventory
and chain relationships. The plans to develop Mongolia’s value chain finance
market will be delivered in partnership with Switzerland’s State Secretariat
for Economic Affairs (SECO).
IFC – a sister organization of the World
Bank and member of the World Bank Group - is the largest global development
institution focused on the private sector emerging markets. We work with
more than 2,000 businesses worldwide, using our capital, expertise, and
influence to create markets and opportunities where they are needed the
most. In fiscal year 2019, we delivered more than US$19 billion in long-term
financing for developing countries, leveraging the power of the private
sector to end extreme poverty and boost shared prosperity. For more information,
please visit www.ifc.org
The MBA is an industry association that voluntarily
unites local and global banks and other related financial institutions
which are engaged in banking and financial business activities in Mongolia.
The role of the MBA is to represent the interest of the banking sector
and serve its members as a sounding board of policy discussions. Since
its establishment in 2000, MBA has managed to expand itself to a professional
industry association through its services and activities.