Leveraging SME Finance through Value Chains in the CAREC Landlocked Economies: Case of Mongolia

We analyze the situation of small and medium-sized enterprises (SMEs) in Mongolia, especially their financial situation and financing mechanisms, the business environment, the existing policies, and value chain analysis, and give suggestions for enhancing their development. Value chains that have their potential developed further are the cashmere, tourism, fruit, and berry sectors. We also discuss key factors in the development of SMEs in Mongolia along with factors hindering their development. There is no unified database on SMEs and different organizations are responsible for gathering data on them. Thus the statistics on SMEs are inconsistent and fragmented. Therefore, it is difficult to present a clear picture of SMEs and make sound policies based on reliable, coherent analysis and data in favor of SMEs. Due to the sparse population, traditional banking services are costly, especially outside residential areas. A lack of sound credit infrastructure and governmental regulations are the main problems in the credit market for SMEs. Financial institutions offer only a few available financial products, due to the underdeveloped Mongolian financial sectors, insufficient government support, and the lack of a regulatory framework. We conclude by emphasizing the need to (i) improve the quality of data on SMEs and establish the relevance of in-depth study of financial literacy to obtain a clear picture of them and develop effective policies; (ii) improve the regulatory framework for business, especially the fair competitiveness regulations; (iii) develop the regulatory framework for other sources of funding; and (iv) develop a long-term national program for SMEs.

WORKING PAPER NO: 1019