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Parliament Ratifies ADB Loan to Improve Credit Guarantee System

News from Country Offices | 7 March 2016

ULAANBAATAR, MONGOLIA — The Mongolian Parliament has ratified a loan agreement with the Asian Development Bank (ADB) for a project to improve the credit guarantee system.  

“The project will help Mongolian small- and medium-sized enterprises (SMEs) get more access to finance from commercial banks which will help diversify the economy, which in recent years has been dominated by the mining sector,” said Robert Schoellhammer, ADB Country Director in Mongolia.

The assistance will help SMEs access the collateral they need—but often lack—to obtain loans through commercial banks by offering SMEs an alternative to the use of real estate. By making more long-term financing available for SMEs through strengthening the Credit Guarantee Fund of Mongolia (CGFM), the project will promote economic diversification and jobs.

The project is funded by a $60 million loan from ADB, with an initial portion of $6 million expected to be made available in March 2016. Expected completion of the project is March 2021. Loan funds will be used by CGFM to place time deposits into approved banks, which will partially support their funding for new loans issued with a credit guarantee. SMEs will need to meet the approval criteria of the bank and the CGFM in order to obtain a loan and guarantee, as well as complying with ADB safeguard policies.

The agreement was ratified during a session of parliament on 19 February.

Accompanying the loan, a technical assistance project will be financed with an $800,000 ADB grant. The assistance aims to strengthen the CGFM, which was established in November 2012 to support SMEs, but has failed to realize its full potential.  Strengthening the fund will allow it to support up to $432 million in loans to SME subprojects.

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.