World Bank Involvement in Mongolia

From Mongol Studies Online Reference

Mongolia became part of the World Bank in February 1991. As of August 2006, the lending portfolio to Mongolia equaled US$ 136.5 million for 9 projects and US$ 26 million for three International Development Association projects.^[1]

As a result of Mongolia’s high population dispersion and climate, World Bank assistance has primarily been in the form of loans to the energy and transport sectors. However, as over one-third of Mongolia’s population lives below the poverty line, the Bank is exploring new programs to support poverty assistance and social sector work.^[2]

Contents 1 Active Projects 1.1 Private Sector Development Credit II 1.2 Index-Based Livestock Insurance Project 1.3 The Second Ulaanbaatar Services Improvement Project (formerly the First Urban Services Improvement Project) 2 Closed Projects 2.1 Sustainable Livelihoods Project 2.2 Private Sector Development Project 2.3 The Ulaanbaatar Services Improvement Project (formerly the First Urban Services Improvement Project) 2.4 Poverty Alleviation Project 3 References 4 External Links

[edit] Active Projects

[edit] Private Sector Development Credit II

Although the first Private Sector Development Credit project concluded in August 2004, the lending market in Mongolia still needs improvement. Therefore, the Private Sector Development Credit II, which began June 2005 and is expected to last until April 2010, aims to support the improvement of the government’s and commercial banks’ efforts to create an intermediate-term lending market.^[3]

Project Components

This project has three components:^[4]

• Line of Credit

Provides longer-term financing for the private sector’s capital investment by allowing the principal financial institutions to borrow a subsidiary loan with a maturity from two to seven years from the Ministry of Finance. The main beneficiaries are to be Mongolia’s small and medium enterprises. At the start of the project, there are now two participating financial intermediaries (PFI): Trade and Development and Zoos Bank. Due to failure to properly disclose a disputed Letter of Credit in the bank’s 2002 – 2003 annual report, Golomt Bank was not included as a PFI for the Second Private Sector Development Credit.

• Technical Assistance

Funds consultant services, system upgrading, and staff training to increase the institutional capacity of the PFIs and the Bank of Mongolia (BOM), so that they can remain competitive and meet international standards.

• Project Implementation Support

Helps fund the cost of a project coordinator, staff training, annual project audits, and various operating expenses.

[edit] Index-Based Livestock Insurance Project

The Index-Based Livestock Insurance Project (IBLIP, US$ 7.5 million), approved May 2005 and expected to close in 2010,^[5] was created to determine the feasibility of index-based livestock insurance in Mongolia through pilot testing of insurance schemes in three provinces of Mongolia.

Insurance has the potential to protect herders against livestock loss and replaces the need for Government restocking programs. Although insurance is recognized as essential to risk mitigation, the usual approach to livestock insurance appears to be ineffective in Mongolian conditions.

It appears that livestock insurance is unpopular with both insurance companies and livestock owners, as it suffers from moral hazard and high costs.

Government-provided insurance has been considered, but the scale of the disasters during 1999 to 2002 showed that government resources alone cannot provide full catastrophe insurance and that market-based alternatives need to be considered.^[6]

Project Components

This project has five components:^[7]

• Pilot index-based livestock insurance programs

Supports the piloting of index-based livestock insurance products in the aimags Bayankhongor, Khenti and Uvs for three consecutive seasons. Subcomponents include forming a Contingent Debt Facility, developing specialized software, livestock data collection, technical training, and technical assistance for refining the pilot program.

• Promotion and public awareness

Supports public awareness activities to educate people on the details of the insurance program, specifically targeting herders and herder groups, livestock services providers, parliamentarians, government officials, insurance companies, commercial banks, various micro-finance institutions, NGOs and donor organizations.

• Institutional capacity building

Funds the development of the institutional framework and capacity necessary for the expansion of livestock insurance.

• Monitoring and evaluation

Follows various stakeholders during the pilot program to monitor access by different social groups, responses to the new products, and herders behavior.

• Project management

Supports the Project Implementation Unit to manage the implementation of the proposed project.

[edit] The Second Ulaanbaatar Services Improvement Project (formerly the First Urban Services Improvement Project)

The Second Ulaanbaatar Services Improvement Project (UBSIP2; US$ 22.98 million) was approved in 2004 and is expected to close in 2010.^[8]

UBSIP2 builds on the lessons learned from the first Ulaanbaatar Services Improvement Project, in particular improving engineering designs, which take into account extreme weather conditions and costs; considering costs when choosing between connecting kiosks to the network and supplying kiosks by truck; better packaging of contracts; and more attention to sanitation.^[9]

Project Components

The project consists of four components:^[10]

• The ger area water supply

Aims to improve water supply in the ger areas of Bayankhoshuu, Chingeltei, Dambadarjaa, Dari-Ekh, Naran, and Uliastai. The city piped system would be extended into these ger areas. However, water tankers would continue supplying several kiosks in Uliastai and Naran where connection to the city network is not feasible.

• The city water supply

Intends to strengthen the primary network system with the ger area network; support water conservation by expanding telemetering and leakage control through pipe repair and replacement; expand monitoring of water flow and pressure in the network, water levels in production wells, and water quality in wells, both in the network and at kiosks; and upgrade equipment in the chemical and bacteriological laboratory for analysis of water and wastewater.

• The energy efficiency improvement

Aims to replace obsolete high energy consuming electrical equipment with energy efficient equipment.

• The Institutional Development and Project Management

Supports the operational and commercial aspects of USAG, as well as overall management of the project.

[edit] Closed Projects

[edit] Sustainable Livelihoods Project

The Sustainable Livelihoods Project (US$ 22.12 million), active from 2000 to 2007,^[11] was a national program that promoted sustainable livelihood in the country. It supported a shift in the way the poverty among the Mongolia’s rural nomads, who make up 41 percent of the population, was treated, as livestock production forms 90 percent of the country’s agricultural production and approximately half of Mongolians are employed in agriculture.^[12]

Full-time herding households doubled from 17 percent to 35 percent in 1995. Some of the goals of the project were to manage risk in livestock production, increase hay and fodder production, promote conservation techniques, improve livestock marketing, create early warning and emergency response systems, institute rural micro-finance services, and establish a community fund for co-financing and execution of investments.^[13]

Project Components

The project consisted of four components:^[14]

• The pastoral risk management component

Reduced the vulnerability of herders to drought, dzud (winter disasters), and other natural disasters through risk forecasting and emergency planning, grazing and pasture management, herder self-help initiatives, and hay and fodder enterprise development.

• Micro-finance outreach component

Provided micro-finance services to various households and individual living in rural areas of the eight core aimags through the creation of a micro-finance development fund, the strengthening of revolving loan funds, and the development of an index-based livestock insurance scheme. The micro-finance development subcomponent helped identify and develop new microfinance projects that met local demand and market conditions, and aided micro-finance institutions in developing adequate business plans and in developing the legal and regulatory framework necessary to efficiently operate non-banking financial institutions as micro-finance intermediaries, while the revolving loan fund subcomponent improved the overall performance of existing micro-credit revolving loan funds created under the Poverty Alleviation Program, and the insurance scheme subcomponent aimed to create a risk index to determine which insurance companies would offer livestock to individual herders; the original goal of the insurance scheme subcomponent was for the government to provide a stop-loss provision during the initial phase of the project, but eliminate this provision by the second phase.

• The local initiatives fund component

Established community-driven mechanisms by which all members of the targeted communities could collaborate to identify infrastructure development needs. Overall, the development of two separate investment funds, training activities, and a fiscal decentralization initiative were integral features of this component.

• The project management component

Transferred project management responsibilities to aimag and sum (rural district) levels within local governments, while retaining overall coordination, monitoring and evaluation at national level. The project did not support new projects; rather the main priority was to strengthen and make use of existing institutional capacity and program management structure.

[edit] Private Sector Development Project

The Private Sector Development Credit Project (US$ 15 million), operating from May 1999 to August 2004,^[15]supported the development of private sector development and strengthen the institutional capacity of the banking sector. It planned to achieve these objectives by increasing the availability of commercial bank term loans to private enterprises, strengthening their financial intermediation and resource distribution capabilities, and improving the Bank of Mongolia’s bank supervision functions.

Project Components

This project had two components:^[16]

• Line of Credit

The lack of access to formal term finance in Mongolia hindered the possibility of private sector growth. To address the need for medium and long-term investment financing, the Private Sector Development credit line was formed to meet both the investment needs for the sub-borrowers and the soundness of the financial institutions. The line of credit (LOC) was the main component, amounting to $10.0 million, and was made available for on-lending to private firms by the principal financial institutions: Golomt Bank, Trade and Development Bank, and later Zoos Bank. Also financed by the line of credit were plant and equipment purchased by private enterprises, as well as permanent working capital and civil works.

• Technical Assistance (TA) Component.

The TA component was designed to strengthen the capacity of Mongolia’s banking sector and assist the participating financial institutions in better managing sub-loans. It consisted of establishing the Counterpart Working Group to coordinate the implementation work for the project, providing funding to the Bank of Mongolia workers to train workers in bank supervision skills and to develop a credit information system, as well as providing assistance to the PFIs. The Trade and Development Bank received technical assistance for its IT system renewal and for a training program on banking operations; Golomt Bank received aid for consultant services on strategic and business planning, and training for business management, finance and banking; Zoos Bank received assistance which initially focused on term lending to develop a set of appraisal procedures, and later funded other training activities such as treasury function and branch management.

Outcomes^[17]

• Line of Credit

At the end of the project, 53 sub-projects were submitted by PFIs. All of the sub-loan borrowers were small and medium enterprises owned by the private entrepreneurs, with the average sub-loan of size US$200,000. The sectors ranged from food production, to education, to tourism. By the end of August 2004, the committed loan amount reached more than $10 million and the amount disbursed was approximately $9.8 million. There were only about three past due loans. Overall the proportion of non-performing loans to total sub-loans was less than 6 percent, compared to the system average of over 12 percent at the end of 2004. At the start of the project, sub-loan approvals by the PFIs were slow as a result of the poor quality of loan applications, inability to co-finance at least 20 percent of the proposed project, and absence of collateral. As a result, some of the PFIs began to train potential borrowers in improving project preparation and loan applications.

• Technical Assistance Component

Overall, the subcomponents operated at a reasonable pace, suffering only with respect to delays in disbursements to the Trade and Development Bank at the beginning of the project due to the long privatization process of the bank. Furthermore, at the time of completion, Golomt Bank grew to be the largest reputable bank in Mongolia, partly resulting from the implementation of the advice they received from consultant services.

[edit] The Ulaanbaatar Services Improvement Project (formerly the First Urban Services Improvement Project)

The Ulaanbaatar Services Improvement Project aimed (UBSIP; US$ 18.1 million), active from 1997 to 2003,^[18] aimed to address the inequity between ger and formal housing areas.

Project Components

The project consisted of seven components:^[19]

• Improve quality, quantity and reliability of water supply.

Improve the quality, quantity and reliability of water supply for the people living in twelve low-income ger areas

• Substantially lower unit costs of water supply.

Lower the unit cost of water supply to ger areas by replacing tankered with piped water.

• Improve ger area infrastructure and access to water and sanitation

Improve ger area infrastructure, such as roads, bridges, footpaths and storm drainage.

• Improve reliability and quality of city water distribution system.

Improve the reliability and quality of the Ulaanbaatar water distribution system and adapt it for distribution of piped water to ger areas.

• Reduce water wastage.

Reduce water wastage and production costs.

• Convert to quantity-based water and sanitation billing system.

Replace the norm-based water billing system with one that is quantity-based.

• Develop USAG towards commercially-oriented public utility.

Expand the capabilities of the Ulaanbaatar Water and Sewerage Company (USAG) for financial and operational management.

Apart from a reduction from the number of ger areas covered from twelve to seven and other minor adjustments, the project objectives remained intact.

Outcomes^[20]

• Improve quality, quantity and reliability of water supply.

Although the number of ger areas was reduced from twelve to seven, population increase in ger areas caused the number of beneficiaries to be about the same as originally planned.

• Substantially lower unit costs of water supply.

At the completion of the project, the unit costs of water supply to ger areas had not decreased. However, the price differential between water sold at ger area kiosks and prices charged to people living in apartments decreased from twelve times before the start of the project to less than three times at the time of project completion as a result of an increase in water tariffs to apartment dwellers.

• Improve ger area infrastructure and access to water and sanitation.

The quantity and quality of services to the five project supported ger areas was raised greatly.

• Improve reliability and quality of city water distribution system

The initial stage was proved to be highly successful in strengthening Ulaanbaatar’s distribution network and in increasing water supply to both formal housing areas and the seven ger areas covered by the project.

• Reduce water wastage

The project was rated highly satisfactory because of the efficiency of the water metering program and other water conservation efforts, also demonstrating the effectiveness of the Government’s “user pays” policy pricing.

• Convert to quantity-based water and sanitation billing system

The installation of water meters and the development and implementation of computerized billing and collection systems led to this project being rated as highly satisfactory.

• Develop USAG towards commercially-oriented public utility

The project exceeded the goal of making USAG an enterprise capable of undertaking greater autonomy in its operations and management.

[edit] Poverty Alleviation Project

The Poverty Alleviation Project (PAP; US$ 10.5 million), approved July 1995 and closed December 2000,^[21] supported projects that helped Mongolia’s most vulnerable groups cope with the adverse effects of the country’s economic transition, where the vulnerable groups are defined as: (a) children without one or both parents; (b) disabled persons; (c) the elderly without care; (d) the unemployed; (e) low-income households with many children; (f) female-headed households; and (g) herders with few animals.

Project Components

This project had four components:^[22]

• Create gainful employment and income for the poor and absolute poor

The income generating component of the PAP aimed to create employment opportunities through public works projects, including infrastructure maintenance and environmental protection works.

• Raise enrollment in basic education

In order to reduce the dropout and non-enrollment rates, the PAP funded the renovation of schools, installation of heating systems, and the distribution of teaching materials.

• Reduce maternal mortality

Through the introduction of transport services, the installation of heating systems, the distribution of medical equipment and the training of health staff, the rural health component provided critical inputs needed to assist rural health services in reducing maternal mortality.

• Provide assistance to handicapped and mentally retarded children and disabled persons.

The support for the disabled component financed the special equipment needs of mentally retarded and physically disabled children, and institutes and factories that trained or employed disabled adults.

[edit] References

1. ↑ The World Bank. Mongolia Country Brief: The World Bank’s Loan Portfolio in Mongolia. Retrieved on 2008-06-25.
2. ↑ "Mongolia Country Brief"
3. ↑ The World Bank. (2005-06-10). Public Sector Development Credit II. Retrieved on 2008-07-04.
4. ↑ The World Bank. (2005-06-02). Mongolia - Second Private Sector Development Credit Project Report 32067-MN. Retrieved on 2008-06-27.
5. ↑ The World Bank. (2005-05-10). MN-Index-Based Livestock Insurance: Project-At-A-Glance. Retrieved on 2008-07-01.
6. ↑ The World Bank. (2005-05-02). Mongolia – Index-Based Livestock Insurance Project Report 32220-MN. Retrieved on 2008-07-01.
7. ↑ "Mongolia – Index-Based Livestock Insurance Project Report"
8. ↑ The World Bank. (2004-04-09). Second Ulaanbaatar Services Improvement Project: Project-At-A-Glance. Retrieved on 2008-06-27.
9. ↑ "Mongolia – Second Ulaanbaatar Services Improvement Project Report"
10. ↑ The World Bank. (2004-03-31). Mongolia – Second Ulaanbaatar Services Improvement Project Report 27578-MOG. Retrieved on 2008-06-27.
11. ↑ The World Bank. (2002-07-26). Sustainable Livelihoods Project: Project-At-A-Glance. Retrieved on 2008-06-27.
12. ↑ The World Bank (2002-06-11). “$19 Million Credit to Assist Mongolian Herders in Managing Risks, Improving Livelihoods.” Press Release. Retrieved on 2008-06-27.
13. ↑ The World Bank. Mongolia Country Brief: Helping the Poor. Retrieved on 2008-06-20.
14. ↑ The World Bank. (2002-05-21). Mongolia-Sustainable Livelihoods Project Information Document PID9725. Retrieved on 2008-06-27.
15. ↑ The World Bank. (1999-09-17). Private Sector Development Credit Project: Project-At-A-Glance. Retrieved on 2008-06-27.
16. ↑ The World Bank. (2005-02-23). Mongolia-Private Sector Development Project Implementation Completion Report No. 31419. Retrieved on 2008-06-27.
17. ↑ "Mongolia-Private Sector Development Project Implementation Completion Report"
18. ↑ The World Bank. (1997-05-27). Ulaanbaatar Services Improvement Project. Retrieved on 2008-06-26.
19. ↑ The World Bank. (2004-06-24). Mongolia-Ulaanbaatar’s Services Improvement Project Implementation Completion Report No. 28832-MOG. Retrieved on 2008-06-27.
20. ↑ "Mongolia-Ulaanbaatar’s Services Improvement Project Implementation Completion Report"
21. ↑ The World Bank. (1995-05-22). Poverty Alleviation for Vulnerable Groups. Retrieved on 2008-06-24.
22. ↑ The World Bank. (1997-09-05). Mongolia-Poverty Alleviation for Vulnerable Groups Project Information Document No. PIC867. Retrieved on 2008-06-24.

[edit] External Links

Mongolia - Projects and Programs - contains more information about World Bank projects in Mongolia.