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By providing a US$5mn loan to XacBank, EBRD is signing its first investment in Mongolia. The finance will allow XacBank to expand its operations to private micro and small businesses and thus support a vital segment of the country’s economy. In addition, the EBRD will provide XacBank with a US$1mn limit for trade finance to bolster financing imports and exports by its clients.

XacBank is Mongolia’s second largest microfinance institution with 55 branches located in each of the country’s regional centres and the capital Ulaanbaatar. It offers business, consumer, rural and other loans such as mortgage finance or financial leases. While XacBank’s focus is on microfinance, the bank aims to expand its activities and become a universal bank.

The Mongolian banking sector is still highly concentrated in Ulaanbaatar and larger towns. Financing of micro and small enterprises, particularly in rural areas, and foreign trade remains a major challenge which the EBRD will address by providing finance for on-lending to local clients.

The US$1mn trade finance facility is being extended under the EBRD’s Trade Facilitation Programme (TFP) in which more than 100 issuing banks in the bank’s countries of operations participate together with some 600 confirming banks globally to facilitate imports and exports to and from the region. More than 5,000 transactions have been financed with a turnover of more than €2.7bn to-date under TFP.

EBRD president Jean Lemierre says the bank was delighted to start commercial operations in Mongolia and stressed that strengthening the financial sector would be a key priority. By supporting XacBank’s ability to satisfy the financing needs of enterprises and importers and exporters the EBRD would encourage competition in the banking sector, which is expected to benefit consumers, generate employment and improve living standards.

The proceeds of the loan will be allocated to address the financing needs of the low-income marginalised population in remote areas, nomadic herders and small businesses through its countrywide branch network and mobile banking services, which reach 180 soums (smallest regional units) corresponding to an outreach of 56% of all settlements in Mongolia.

The loan to XacBank will only be disbursed after October 15, the date on which the amendment to the agreement establishing the EBRD permitting Mongolia to be a country of operation comes into effect.

However, the EBRD had already been working with the country on various donor-sponsored technical assistance projects. The Mongolian Cooperation Fund was set up in March 2001 with total funds from donor governments worth €10.3mn, of which €8.5mn have been committed to provide support in areas such as financial institutions, aviation, telecommunications and power. The EBRD has also worked with Mongolia on the reform of the country’s legal system.

Through its micro and small enterprises programmes the EBRD has supported over 1mn small enterprises throughout eastern Europe, Russia, Central Asia and the Caucasus. The EBRD has worked with 84 commercial banks and non-bank microfinance institutions to establish or expand specialised micro and small business finance units and has lent €560mn to facilitate close to €8bn in loans to micro and small businesses in the region.