Facilitating access to finance for small and medium sized enterprises in Mongolia

Context

Small and medium enterprises (SMEs) in Mongolia face significant barriers to growth due to limited access to financial products offered by commercial banks. These banks typically favour established companies due to their greater collateral, often sidelining SMEs.

In Mongolia, loan approval processes primarily rely on the value of assets as security, falling short of international standards.

On the other hand, SMEs also struggle with preparing necessary documentation for loan applications. This makes it extremely difficult for promising small businesses without significant collateral to secure bank loans. Consequently, they often face high interest rates and short loan terms.

These challenges are exacerbated for green investments, which usually require lower interest rates, longer terms, and larger loan amounts.

Objective

SMEs in Mongolia gain improved access to credit, particularly for green investments, which focus on projects that reduce environmental impact.

Approach

The project tackles financing challenges for SMEs in Mongolia by addressing both supply and demand:

• Supporting commercial banks: The project improves the ability of commercial banks in SME financing, with a focus on green investments. This involves training staff, including loan managers and risk managers, in partnership with the German Sparkassen Foundation and facilitating access to international funding sources like the Green Climate Fund (GCF).
• Empowering SMEs: To enhance SMEs' ability to secure loans, the project provides targeted training in financial literacy and business planning skills. Customised training curricula were developed, with participants applying their skills in the ‘Sustainable Ideas for Mongolia’ competition, where winning proposals receive funding through loans from the Trade and Development Bank (TDB).
• Facilitating access for women entrepreneurs: The project reduces collateral requirements to make loans more accessible for women-led businesses.
• Driving a green transition: The project supports banks manage green portfolios and secure green refinancing. It also shares best practices with regulators and stakeholders to support Mongolia’s shift to a greener economy.

Last update: November 2024