Microfinance in Mongolia


A nation in transition

In the 1990s Mongolia transformed from a centrally planned to a market-driven economy. By 2004 the private sector’s share of  GDP had risen to 75 percent and since 2000 the average annual GDP growth rate has been above 5 percent. Not everyone, however, has benefited from this growth. With more than a third of Mongolians living below the poverty line, poverty was and still is major challenge. There has been gradual and steady reduction in the percentage of population living under the national poverty line down to 32.2 percent in 2006 from 36.3 percent in 1990, 35.6 percent in 2000 and 36.1 percent in 2005. 


  • The poverty head count declined by more than 11 percentage points from 2010 to 2012, but still remains high at 27.4%.
  • By 2005 there were 17 banks, 126 non-bank financial institutions and 270 cooperative savings and credit associations in Mongolia.
  • Rural clients comprise about 47 percent of XacBank’s clients.

To support its less advantaged population, the Mongolian Government initiated an experimental microfinance programme in 1997 with support from UNDP’s global MicroStart programme. Its success exceeded all expectations and it rapidly developed into a nationwide programme.

Empowerment through microfinance

In the 1990s MicroStart — which has since been absorbed into the UN Capital Development Fund—provided seed money for microfinance programmes, focusing on those that could become self-sufficient. With an initial grant of US$1 million, UNDP — in partnership with the Mongolian Government, several non-governmental organizations and a Mongolian management team — pioneered a microfinance initiative targeting those who had not benefitted from the national economic transformation. Mongolian leadership was central to the initiative’s evolution into the country’s first non-bank financial institution.

In 1999, Mongolia began registering non-bank financial institutions, such as those created through MicroStart. A microcredit regulatory framework and a national policy framework developed over the next years. In 2002 the Mongolian parliament enacted laws prioritising inclusive economic growth, defining the roles and responsibilities of non-bank financial institutions and legalizing savings and loan cooperatives. By 2001, a consortium of these institutions had become XacBank, an independent commercial bank. 

The newly opened banking and finance sectors grew quickly and by 2005 there were 17 banks, 126 non-bank financial institutions and 270 cooperative savings and credit associations. Mongolia’s experience demonstrates some of the birth pangs of microfinance programmes. Adequately regulating entrants into the sector has been difficult, as has been ensuring a commercial interest rate that reflects the higher risk of loans while still permitting broad access. 

UNDP’s support concluded in 2001 but nationally driven momentum and private sector resources have moved the sector forward. And XacBank, once a UNDP beneficiary, is now an implementation partner.

Making a difference: the transformational impact

There is little doubt that microfinance has transformed lives, both by creating economic opportunities and insulating many Mongolians from the uncertainties of a competitive market economy. 

XacBank has made striking progress in becoming self-sustaining and in meeting client and national needs. By May 2010 it had 93,930 loans outstanding, with a dynamically varied customer base. In partnership with the Women’s World Bank, XacBank has developed programmes targeting young women, who comprise one half of its customers. It continues to channel loans to rural areas, which poses a special challenge in a country with a low rural population density. Although rural clients comprise about 47 percent of XacBank’s clients, this represents less than 10.1 percent of the rural population. 

XacBank’s growth is observable in several performance indicators. From 2002 to 2010, its assets grew by 26 times, loans increased by 43 times and savings by 25 times. The initiative that started with $1 million in 1998 now has assets of over $450 million. 

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