IFC, MBA work to improve access to funding for MSMEs through developing value chain finance in MongoliaEconomy
Ulaanbaatar /MONTSAME/. 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 in Mongolia.
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.
World Bank Mongolia