A new foreign investment law in Mongolia has caused quite an international stir for a landlocked country with about 3m people and a GDP of little over US$10bn.

After months of deliberation, parliament passed a law that effectively repeals earlier legislation that discriminated against foreign investors. The hastily drafted existing law, and the resulting regulatory uncertainty, had threatened to put an end to one of Asia’s most impressive growth stories. The new rules, which go live next month, seem to put the country back on track.

That is a welcome development for Mongolia, a country that is ideally located for international investors who believe in Asian prosperity. Its neighbours, Russia and China, each have multi-trillion-dollar economies, making its already enviable mineral and metal reserves that much more valuable. Keeping outside investors away from assets that need foreign capital, technology and demand to grow was always a non-starter.

But this law is no quick fix. That may be tough news to swallow for investors in a country that watched its fortunes change so quickly and drastically in the last few years. Indeed, many foreign investors only started to take the country seriously when the Mongolian Stock Exchange’s Top-20 Index rose more than 400% from January 2010 to February 2011. But like the country’s 17.5% GDP growth in 2011 – up 11 points on the year – such impressive returns have hardly been sustainable.

Investors are missing the point if they only focus on the mining industry as a barometer for economic progress. The country needs to develop a stronger banking industry and capital markets to move ahead. Of course, the new law encompasses those two financial sectors, but the challenge now is to get the international markets to notice them. Mining may have brought foreign capital to Mongolia. A stronger banking infrastructure just might  help keep it there.