A new agreement between IFC, a member of the World Bank Group, and the Mongolian Bankers Association (MBA) will help improve access to funding for 200,000 micro, small and medium enterprises (MSMEs) cumulatively over the next 5 years by developing a vibrant market for value chain finance in Mongolia.
Access to finance is a challenge faced by many Mongolian MSMEs, which struggle to obtain bank loans to sustain and expand their operations, as they do not own land or buildings that financial institutions generally seek as collateral. Value chain financing (VCF) is an innovative way to unlock additional funding for MSMEs as it allows them to leverage the higher credit standing of a larger buyer or seller to borrow from financial institutions. It could also enable them to take longer-term orders and be more resilient to short-term shocks.
“At a time when enterprises of all sizes are being impacted by COVID-19, it’s important to look at new ways to help small and medium-sized enterprises. In Mongolia, this is particularly relevant to areas like livestock and agriculture, as businesses in these sectors need more support to obtain finance to expand and create jobs,” said Rufat Alimardanov, IFC Resident Representative for Mongolia.
This move complements the government of Mongolia’s ongoing efforts to increase the competitiveness and exports of its agriculture value chains. These are seasonal businesses; and operators typically require liquidity support to handle cash cycles as well as asset financing to expand operations. Their demands can be best met with VCF.
IFC has supported the development of movable asset finance markets in more than 40 emerging markets including Columbia, China, Ghana, and Vietnam. VCF is a main segment of this market and it’s an organized way of business financing, which leverages receivables, inventory, and chain relationships. The plans to develop Mongolia’s value chain finance market will be delivered in partnership with Switzerland’s State Secretariat for Economic Affairs (SECO).
Original source: IFC
