EBRD and EU promote SME lending in Mongolia

• EBRD and EU join forces to stimulate MSME lending in Mongolia
• EBRD to cover up to 50 per cent of XacBank’s risk on new MSME loans
• Guarantee extended through a new portfolio risk-sharing framework

The European Bank for Reconstruction and Development (EBRD) and the European Union (EU) are promoting lending to micro, small and medium-sized enterprises (MSMEs) in Mongolia by introducing a new financing product, a portfolio risk-sharing framework.

Through the framework, the EBRD will provide an unfunded guarantee of up to €25 million (US$ 29 million) on certain loans issued by one of the country’s major lenders, XacBank.

Under the arrangement, the EBRD will cover up to 50 per cent of XacBank’s credit risk on newly issued MSME loans. XacBank is the first financial institution in Mongolia to partner with the EBRD on the risk-sharing framework.

The loans will support the working-capital needs of domestic businesses, helping them to expand and improve their operations. Eligible sub-borrowers will also receive EU-funded technical assistance under the EBRD’s Advice for Small Businesses programme. The deal will facilitate the development of MSME-earmarked structured finance in Mongolia.

The project will benefit from a €2.25 million guarantee provided by the EU through its European Fund for Sustainable Development Plus, which will help to mitigate financial risks associated with lending to small businesses in order to promote economic growth in the country.

The portfolio risk-sharing framework is one of the EBRD’s main financing structures dedicated to supporting and developing local private companies. The Bank offers partner banks funded or unfunded risk participation mechanisms in foreign or local currency by co-financing and guaranteeing partner banks’ loans to eligible companies.

Over the past two decades, the EBRD has financed 172 projects worth a total of US$ 3.2 billion (€2.8 billion) in various sectors of Mongolia’s economy. Ninety per cent of the Bank’s loans in the country have been extended to private companies, making the EBRD the largest lender to Mongolia’s private sector among the international financial institutions.