OREANDA-NEWS. The Asian Development Bank (ADB) has approved a $60.8 million loan and technical assistance grant to improve the country’s credit guarantee system, which will help Mongolian small and medium-sized enterprises (SMEs) get more access to finance from commercial banks. 

The assistance will be targeted at small businesses outside the mining sector—which accounts for 25% of the gross national product but makes Mongolia highly vulnerable to swings in global commodity prices.

“Despite representing over 90% of all registered businesses and providing about half of all jobs, SMEs still find it difficult to access credit in Mongolia, and this hampers their potential for growth,” said Giacomo Giannetto, an ADB Senior Financial Sector Specialist. “The assistance will help SMEs access the necessary collateral to obtain loans through public and private credit guarantees.”

The assistance aims to make more long-term financing available for SMEs by strengthening the Credit Guarantee Fund of Mongolia, which was established in November 2012 to support SMEs but has failed to realize its full potential due to internal factors—such as a lack of operational capacity and expertise—as well as external factors like limited awareness of the facility among SMEs.

Strengthening the Credit Guarantee Fund of Mongolia will allow it to support up to $432 million in loans to SME subprojects, helping participating financial institutions mitigate loan funding maturity mismatches by placing time deposits with them to fund a portion of their loans to SMEs, and the fund guaranteeing part of the credit risk.

The project will also contribute to establishing a local market for 5-year time deposits,  building confidence in the safety of these financial instruments, and encouraging the private sector to mobilize savings for longer-maturity bank loans. The placement of time deposits will require participating financial institutions to use new guarantee products issued by the fund targeting women entrepreneurs, rural SMEs, and those that commit to creating non-mining sector jobs.

The $60 million loan comes from ADB’s ordinary capital resources and will be complemented by $30 million in counterpart support provided by the Government of Mongolia and private sector participating financial institutions. The project will run for 5 years, with an expected completion date of March 2021.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.