ADB to Support Further Financial Sector Reform in Mongolia
16 December 2005MANILA, PHILIPPINES - ADB will help the Government of Mongolia develop a sound and broad-based financial sector through a US$10 million program loan.
The program will help reduce the cost of borrowing and expand access to credit by facilitating loan recovery and reducing the cost of collateral registration. It will also include measures to strengthen governance in banks to protect depositors.
It will enhance the role of nonbank financial institutions in mobilizing savings for investment capital, including by helping establish a single regulator for the sector. The program will also establish a financial intelligence unit in the Bank of Mongolia to help reduce the risks from money-laundering.
"Underdevelopment of the financial sector is a key constraint to private sector-led growth in Mongolia. The program aims to develop a financial sector that effectively mobilizes and allocates resources, essential to creating jobs and reducing poverty," says Sona Shrestha, an ADB Economist.
The program builds on the progress achieved under ADB's first and second Financial Sector Program Loans. The first, launched in 1996 against the backdrop of a fragile banking sector, focused on bank restructuring and resolution, strengthening prudential regulations and supervision, and, more generally, developing a market-oriented banking sector.
The second program loan helped upgrade management information systems in banks, introduce the interbank market, and develop a basic framework for the nonbank financial sector.
The new program, taking a holistic approach, will address the remaining legal and regulatory, institutional, and policy constraints.
"Developing a broad-based and resilient financial system is a gradual process, especially in transition economies with limited market-based institutions and human resources," says Ms. Shrestha.
A $900,000 technical assistance (TA) grant from ADB's Japan Special Fund, financed by the Government of Japan, will support the implementation of the program's policy reforms, and help boost the capacities of the regulator for the nonbank financial sector and the financial intelligence unit to be established under the program. The Government will contribute $220,000 towards the TA's total cost of $1.12 million.
ADB's loan comes from its concessional Asian Development Fund. It carries a 24-year term, including a grace period of 8 years, and an interest charge of 1% per annum during the grace period and 1.5% subsequently.
The Ministry of Finance is the executing agency for the program, which will be carried out over four years.
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