The European Bank for Reconstruction and Development and the Bank of Mongolia have taken a key step towards the development of the country”s local currency money and capital markets.

On Monday, EBRD President Sir Suma Chakrabarti, The Governor of the Bank of Mongolia, Mr N. Zoljargal, and the Deputy Minister of Finance, Mr S. Purev, have signed a Memorandum of Understanding under the EBRD”s Early Transition Countries (ETCs) Local Currency Lending Programme.

According to the Memorandum, the Ministry of Finance and the Bank of Mongolia confirm that Mongolia wishes to be part of a targeted local currency risk-sharing programme for ETCs, supported by the EBRD and international donors.

The programme has two main features. First, the EBRD and the Mongolian authorities will agree on reforms and an action plan to develop local capital markets and to enhance opportunities for local currency financing in the medium to long term. Second, donors will share the loan risk, allowing the EBRD to provide local currency loans at affordable interest rates. Borrowers will be micro, small and medium-sized enterprises (MSMEs) that sell their goods and services in local currency, and are therefore most vulnerable when borrowing in foreign currencies. The EBRD will provide loans either indirectly to MSMEs through local partner banks or directly to local corporates.

Signing the Memorandum of Understanding, EBRD President Sir Suma Chakrabarti said: “This agreement between Mongolia and the EBRD is a very important step in our joint efforts to deepen the tugrug capital markets. Mongolia is now the sixth country where our ETC Local Currency Programme will be able to improve access to local currency loans for local companies. With the signing of this Memorandum, the EBRD can potentially double its financing to SMEs in Mongolia.”

The Governor of the Bank of Mongolia, Mr N. Zoljargal, said: “Greater use of tugrug, stronger local money and capital markets mean a more robust and stable economy. We are continuing reforms to develop local currency capital markets, and our participation in the EBRD”s Local Currency Lending Programme is a big step towards that aim.”

The EBRD”s Early Transition Countries Initiative aims to stimulate economic activity in the Bank”s countries of operations which still face the most significant transition challenges: Armenia, Azerbaijan, Belarus, Georgia, Moldova, Mongolia, Kyrgyz Republic, Tajikistan and Turkmenistan.

The EBRD”s ETC Local Currency Programme is already active in five countries: Armenia, Georgia, Moldova, Kyrgyz Republic and Tajikistan.  81,000 MSMEs have already benefited from the programme in those countries; out of these, 30,000 borrowed for the first time in local currency. Donors to the programme include the EBRD multi-donor ETC Fund, Switzerland, the USA and the EBRD Shareholder Special Fund.

Since commencing its operations in Mongolia in 2006, the EBRD has invested almost US$ 1 billion in about 60 projects in various sectors of the Mongolian economy.

Source: 4-traders