Special report: Mongolia: Bringing banking to the steppes

David Wigan
Published on:

Despite its small and widely dispersed population, Mongolia rates highly in the financial inclusion stakes

Mongolia scores impressively when it comes to ensuring access to financial services considering it is the least densely populated country in the world, with a population of 2.9 million spread out over 1.5 million square kilometres.

Around a quarter of the population are nomadic herders of goats or yaks on the steppes, far beyond the reach of the country’s almost non-existent transport infrastructure. Provision of services of any kind – let alone banking – is a challenge.

Yet almost 80% of Mongolians have a formal bank account, according to the World Bank’s 2012 Global Financial Inclusion Database (Findex), with the level of penetration far exceeding that of most of the country’s neighbours including China, Russia and Kazakhstan.

Mongolia outperforms other low-to-middle income countries on every financial inclusion variable apart from health insurance, its East Asian neighbours on most measures, and even rivals some high-income developed countries in areas such as penetration of debit cards. One in four has a loan; the number of women with bank accounts exceeds men by 10% with the proportion approaching that of North America and the Euro area. It scores particularly highly in inclusion of groups whose access to financial services is most commonly limited, including those with only a primary education, low incomes and rural residents.

Reaching the people

"Mongolian banks are focused on reaching out to the population, nearly 50% of which still lives in rural areas," says Magvan Bold, chief executive of Tenger Financial Group whose largest subsidiary is XacBank. "Technology plays an increasing role, and even herders can use mobile phone banking apps to make payments and transfer money."

Banking services have traditionally been the preserve of the middle class and the wealthy but these are a small minority in a country with huge income disparity where around one-fifth of the population, according to ACDI/VOCA, exists on $1.25 day.


"Technology plays an increasing role, and even herders can use mobile phone banking apps to make payments and transfer money"

Magvan Bold, Tenger Financial Group 

The high level of banking penetration may be due in large part to universal cash handouts from the government’s Human Development Fund as well as pensions, health insurance, and student tuition payments. Around 50% of all bank account holders over the age of 15 cite receiving government payments as the most common use for a bank account, according to Findex; only around 30% of customers say the main use is for payroll credits.

"Many of the people out in the countryside where Khan Bank and State Bank have a lot of branches are getting payments regularly and have to receive them through a bank so I’m not so sure it’s a problem of people lacking bank accounts," says TDB president Randolph Koppa. "There isn’t a lot of consumer finance that banks do that’s unsecured. We can count the number of mortgage holders in the banking sector at about 55,000 so, that’s maybe only covering 200,000 people. There’s still some room to grow in terms of getting home financing and other retail financing services to more people."

The big three retail banks, XacBank, Khan Bank and State Bank, have proactively targeted marginalized consumers in remote rural areas, including nomadic herders with the aim of providing accessible banking services.

XacBank, part-owned by the International Finance Corporation, the European Bank for Reconstruction and Development, ethical investors and NGOs, has equitable access to banking products and services for all, including SMEs, as one of its primary goals. Created in 2001 from the merging of international development organizations’ rural microfinance operations, XacBank extended into all 21 provinces within its first year of operation. Building on its microfinance roots, it has since expanded with more branches and extensions through the use of tie-ups with savings and credit unions, franchise arrangements and agents.

XacBank’s micro loans account for around 17% of its $600 million loan portfolio with delinquency rates among the very lowest. With almost one in four customers a (secured) micro-loan client, XacBank’s success is in many ways an object lesson in responsible lending. It uses an end-to-end approach built around an outreach strategy of setting up small outlets in remote rural centres, gradually establishing a network of relationships to disseminate no-obligation information about micro finance. The bank is equally meticulous in providing ongoing post-loan disbursement advice and support.

Khan Bank, with three out of every four of its 524 branches serving the provinces, claims to provide banking services to an estimated 70% of the population. Card services are provided to 1 million customers via a network of 310 ATMs.

On the phone

Self-service facilities are on the rise with 50% of bank account holders already using ATMs as their main mode of withdrawals. However, Mongolia’s saturation-level mobile phone density is an increasingly important factor in the penetration of banking services.