ADB to raise private business loans

The Mongol Messenger
ooluun@montsame.mn
2019-05-17 13:53:05

Mongolian private companies have possibility to borrow loans up to a combined USD1 billion from Asian Development Bank, underlines Finance Minister of Mongolia Ch.Khurelbaatar. The Finance Minister took part in the 52nd annual meeting of ADB Governors held on May 1-6, sharing Mongolia’s views and positions with representatives of ADB, its largest development partner, and other partners. 

The significant amount of financing for Mongolia’s private sector is a reflection of ADB Strategy 2030’s target to expand its private sector operations. During the annual meeting, ADB Governors appreciated the target that one-third of its operations by number will be private sector operations by 2024. ADB also targets a substantial increase in commercial co-financing. ADB’s new lending, equity investments, and guarantees to private companies reached USD3.1 billion in 2018, a 37 percent increase from the previous year.

“The performance of ADB’s private sector operations is helping the region address many challenges including improving its infrastructure, creating jobs, and enhancing access to finance,” said ADB Vice-President for Private Sector Operations and Public-Private Partnerships Mr. Diwakar Gupta. “ADB will continue to expand private sector assistance by diversifying into new and frontier markets, scaling up financing for agribusiness, health, and education, and moving into emerging infrastructure sectors such as water, waste, and sanitation.”

The bank’s Development Effectiveness Report of Private Sector Operations 2018 was released at the annual meeting and according to the report, there were a record 32 new private sector projects committed in 2018, compared with 27 the previous year. Direct financing was complemented by a record $7.2 billion in commercial cofinancing last year, representing almost 50% of all cofinancing mobilized by ADB.

“There are huge opportunities to resolve many issues by attracting private sector investment instead of Government borrowing. Merely creating clear legal frameworks, it is possible to attract investment from private sector in all sectors. For example, civil aviation liberation can be achieved when government defines its policy for it. As a result, many airlines would enter the market, conducting more flights fostering tourism development. The motivation of private companies for making investments is naturally profit. Therefore, when government creates a favorable legal environment for it there will have sufficient financial sources for accelerating development of Mongolia”.

“Moreover, we agreed with ADB on issuing a bond to be denominated in national currency allowing only private companies to buy it. The bond will be denominated in national currency-Tugrig, as it will be more profitable to private companies. When a bond is denominated in foreign currency there is a risk of exchange rate variation. For example, the Chinngis bond was issued when exchange rate of USD was equal to MNT1300, but the USD rate grew up to MNT2600 when the bond should have been repaid. Under this arrangement, ADB would be responsible for bond risks. The bond will provide affordable financial sources needed for private companies. We have agreed on general issues and not defined the details yet.”

ADB’s active private sector operations have already contributed to the region’s economy, providing jobs for an additional 313,308 people and training 322,303 beneficiaries, mostly in financial literacy. Access to finance has been improved through active private sector projects for more than 6.8 million people and micro and small and medium-sized companies, while other projects have contributed to the education of 9,455 additional students. ADB’s private sector clients have achieved carbon emissions reductions of 11.4 million tons annually. Energy projects dominated the commitment portfolio of ADB’s Private Sector Operations Department in 2018, accounting for USD1.7 billion or around 54 percent of total commitments. The volume of financial intermediary projects committed last year almost doubled to over USD900 million, while Private Sector Operations Department’s Microfinance Risk Participation and Guarantee Program achieved record volumes by facilitating USD271 million in local currency loans to microfinance institutions.

Deputy Governor of Bank of Mongolia (Mongolbank) B.Lhagvasuren, who also attended the ADB annual meeting, highlighted that cooperation of Mongolbank with ADB is successful and productive, and mentioned the implementation of the Payment System Modernization Project as a good example. 

This USD25 million project will upgrade the payment system infrastructure up to international standards. “Within the project the real time gross settlement system for high-value transactions, which means immediate transfer of big amount of money or more than USD3 million to the account when performing a transaction, has been modernized.  We have a payment system for low value transactions which operates on a program developed by IT professionals of the Mongolbank. To modernize the program an international open bid had been announced and we are buying a ready-to-use program of Montran corporation of USA. This program is widely used in Latin America and the Middle East countries besides the USA. The program will be installed soon and put into operation later this year.

Moreover, within the project the card payment system is to be upgraded as well. Soon payment cards released by Mongolian commercial banks will have an international standard- Mongolian chip. “Chip card closes all the possibilities of stealing card information or misusing the card while it is possible for the card with magnetic stripe, which are commonly used in Mongolia today. As the chip card meets international standards the cards would be usable in other countries.”

Generally, the policies for ADB and the Mongolian government to support the private sector, diversify economy through developing agribusiness, food industry and tourism are closely aligned. Therefore, we will continue our partnership with ADB in the long term, noted Finance Minister Ch.Khurelbaatar.

Recently, framework financing agreement with ADB has been discussed at the Parliament of Mongolia, having major support.