Financial Sector Assessment

Abstract

Owing primarily to extensive investment in new mining projects, Mongolia's economy is on a path of very rapid long-term growth. While financial intermediation in Mongolia has been growing fast, access to finance remains a critical constraint for enterprises, and especially for Small and Medium Enterprises (SMEs). Improving access to financial services will require strengthening the legal and regulatory framework and financial infrastructure, including the secured transactions framework, creditor rights and insolvency regime, credit information sharing system, platform for technology-based banking products, regulation and supervision of nonbank financial institutions, and consumer protection in financial services. To realize fully its economic potential, Mongolia needs to build a diversified, efficient and stable financial system, capable of intermediating both on a large scale and in specific market segments. Due to its focus on the development agenda, and specifically on access to finance for the SME sector, capital markets development, and housing finance market development, this report does not address financial sector stability issues. Financial intermediation in Mongolia has grown significantly in recent years; credit and deposit penetration are on par with the average in the East Asia and the Pacific (EAP) region. Access to finance is particularly constrained for SMEs, which are also more sensitive to an unstable macroeconomic environment, characterized by high inflation and exchange rate fluctuations.