Providers of Microfinance

From Mongol Studies Online Reference

Microfinance services in Mongolia are primarily provided by three sources:

• Formal institutions
• Semi-formal institutions (e.g., NGOs and government projects)
• Informal sources (e.g., moneylenders)

In 1998, less than 1 percent of the Mongolian population had access to mainstream lending services. Four years later, 15 percent of the population had a loan from a mainstream lending service. Micro finance services are made available by three main types of sources: formal institutions, semi-formal institutions (e.g., government projects and NGOs), and informal sources (e.g., moneylenders).^[1]

Contents 1 Financial Service Providers 2 Regulations for Providers 3 Microfinance Policy 4 References

[edit] Financial Service Providers

According to the 2007 Statistical Yearbook, there are 1,427 establishments providing financial services in Mongolia,^[2] which include:^[3]

• 16 commercial banks
• 137 non-bank financial institutions
• 168 savings and credit cooperatives
• 15 insurance companies
• 1 financial leasing institution
• 800 pawnshops

Furthermore, the list of financial service providers also includes informal and semi-formal sources such as:^[4]

• Informal sources such as traders, multi-service cooperatives, shopkeepers and friends and relatives.
• 60 NGOs providing microfinance services (approximately)

Currently, the largest providers of financial services for the poor in Mongolia are commercial banks. Of the 16 commercial banks, approximately 7 actively provide micro-credit loans. However, some argue that the scale of outreach of NGOs and donor projects has not been significant, causing market distortions or merely resulting in failures with large costs.^[5]

According to a 2005 Bank of Mongolia survey of 5405 people, when asked "where do you turn to when you have a need for money?", 45.2 percent of the respondents answered banks, 5.8 percent responded NBFI's, 6.8 percent responded savings and credit cooperatives, 15.6 percent responded pawn shops, 21.2 responded individuals, and 5.4 responded other.^[6]

[edit] Regulations for Providers

NGOs, individuals, and government and donor projects are barred from providing loans to individuals, as they must be authorized by the Bank of Mongolia to do so. However, many of these organizations still provide these services. Only authorized for-profit businesses are allowed to administer banking and non-banking financial services according to Mongolian legislation. However, savings and credit cooperatives are allowed to provide these services because they are restricted to providing them to their members and are not large enough to affect the stability of the financial sector. Depending on the type of institution, there are certain requirements with respect to minimum capital, qualifications, technology and security in order to receive a license. The four main ratio requirements of regulation set by the Bank of Mongolia and the Financial Regulatory Commission of Mongolia are:

• Capital Adequacy
• Loan Risk
• Liquidity
• Foreign Exchange Ratio

However, savings and credit cooperatives do not have minimum capital requirements, but must have a minimum of 20 members.^[7]

[edit] Microfinance Policy

There is no formal policy on microfinance in Mongolia. It is primarily regulated under the financial sector policy. There are no regulations that require certain types of financial institutions to target certain types of customers. Furthermore, interest rates are not regulated and there are no interest rate ceilings.^[8]

[edit] References

1. ↑ Oyunjargal, Tsendbazar & Oyunjargal, Tsendbazar. 2002. Sub-Sector Review of Micro-finance in Mongolia. UNDP Mongolia. Retrieved on 2008-06-24
2. ↑ 2007 Statistical Yearbook of Mongolia. National Statistics Office of Mongolia.
3. ↑ Oyunjargal, Tsendbazar & Oyunjargal, Tsendbazar. 2002. Sub-Sector Review of Micro-finance in Mongolia. UNDP Mongolia. Retrieved on 2008-06-24
4. ↑ Oyunjargal, Tsendbazar & Oyunjargal, Tsendbazar. 2002. Sub-Sector Review of Micro-finance in Mongolia. UNDP Mongolia. Retrieved on 2008-06-24
5. ↑ N. Togtokhbariul. 2007. Microfinance Regulation and Supervision in Mongolia. Central Bank of Mongolia. Retrieved on 2008-08-04
6. ↑ Bank of Mongolia. 2005. Survey on Mongolia's Socioeconomic Conditions, Banking and Financial Institutions' Activities and Development. Retrieved on 2008-08-11.
7. ↑ N. Togtokhbariul
8. ↑ N. Togtokhbariul