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Affordable and Accessible Fintech Based Micro-finance

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Affordable and Accessible Fintech Based Micro-finance

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Financials
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Corporate and Retail Banking
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
15% - 20% (in ROI)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
USD 100 million - USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8) No Poverty (SDG 1)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Gender Equality (SDG 5) Reduced Inequalities (SDG 10) Industry, Innovation and Infrastructure (SDG 9)

Business Model Description

Invest in B2C and B2B financing companies offering affordable and accessible personal and business loans (i.e., small-size, low-interest rates and collateral-free) to serve the needs of the underserved population segments and MSMEs. Examples of companies active in this space are:

Business case: LendMN, established in 2006, is a consumer micro-credit service provider that has introduced the Fintech business model through its LendMN application. The application provides uncollateralized loans online at an interest rate of ~3-4% per month. As of 2022, the Company had 191,000 borrowers.

Numur Credit NBFI LLC, established in 2015, provides digital and conventional micro and small loan services and insurance coverage facilities to individuals and MSMEs. It supports women-owned businesses through its 'women empowerment program' which combines financing with business mentoring to ensure recipients have the resources, tools and network to grow their businesses.

Sendly NBFI JCS, established in 2015, is a licensed international money transfer service for Mongolians abroad. The Company has started cooperation with Golden Money Transfer, Prabhu Money Transfer and Moneytun companies, which have money transfer licenses in 31 states of the United States, and has launched online money transfer application SENDLY.

Expected Impact

Increase financial inclusion and provide affordable and accessible financial services through fintech NBFIs to unbanked populations and businesses.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

Disclaimer

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Country & Regions

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Country
Region
  • Mongolia: Ulaanbaatar
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Sector Classification

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Sector

Financials

Development need
Mongolia's finance sector, despite substantial achievement in household access to financial services, remains fragile and underdeveloped. About 94 percent of the financial sector's financing comes from banks, followed by nonbank financial institutions (NFBIs) with a share of about 5.5 percent. (1)

Policy priority
Vision 2050 states that establishing a smart financial system is one of the main objectives, and aims to achieve this by developing a multi-pillar and inclusive financial system connected to international financial markets.

Gender inequalities and marginalization issues
Lack of access to finance is one of the main challenges for women in Mongolia when starting their own business, or applying for any type of loan. For example, if women do not have named ownership of assets, they may not qualify for loans where the collateral is required.

National data indicates that even where women individuals have access to bank accounts and qualify for loans, their loan sizes are smaller in comparison to those of men. (3)

Investment opportunities introduction
Access to finance and cost of credit have been the main challenge for the rural population as well as MSMEs, leading to significant opportunities for private sector participation for viably closing the credit gap in the sector.

Key bottlenecks introduction
Access to finance in Mongolia is characterized by high-interest rates and the need for collateral to de-risk lending.

Sub Sector

Corporate and Retail Banking

Development need
Access to financial services for rural households is often only available through non-banking financial institutions (NBFIs), such as savings and credit cooperatives. However, 94 percent of the finance sector’s financing comes from banks, followed by NBFIs with a share of about 5.5 percent, thus, credit from microfinance institutions is not significant compared to similar economies (2).

Policy priority
Vision 2050 includes an objective of developing flexible, digital-based, multi-faceted financial services that stimulate the economy during 2021-2030.

Gender inequalities and marginalization issues
Moreover, due to the low internet penetration rate, especially in rural areas, the adoption of technology-based financial solutions is restricted. The credit gap in Mongolia was estimated in 2014 to be USD 5 bn; women-owned SMEs are estimated to make up 25 percent of that gap. (3)

Investment opportunities introduction
Mongolia benefits one of the highest phone subscriber rates in the world with 140 per 100 inhabitants and the internet penetration rate is 84 percent as of 2021. (4) Private investment is encouraged to reduce lending costs and digitize loan transactions for MSMEs and women by investing in the fintech-based NBFIs.

Key bottlenecks introduction
Challenges in digital banking relate to limited mobile and internet penetration, insufficient institutional and technical capacity, and users' reluctance to use mobile payment services because of security concerns.

Industry

Consumer Finance

Pipeline Opportunity

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Investment Opportunity Area

Affordable and Accessible Fintech Based Micro-finance

Business Model

Invest in B2C and B2B financing companies offering affordable and accessible personal and business loans (i.e., small-size, low-interest rates and collateral-free) to serve the needs of the underserved population segments and MSMEs. Examples of companies active in this space are:

Business case: LendMN, established in 2006, is a consumer micro-credit service provider that has introduced the Fintech business model through its LendMN application. The application provides uncollateralized loans online at an interest rate of ~3-4% per month. As of 2022, the Company had 191,000 borrowers.

Numur Credit NBFI LLC, established in 2015, provides digital and conventional micro and small loan services and insurance coverage facilities to individuals and MSMEs. It supports women-owned businesses through its 'women empowerment program' which combines financing with business mentoring to ensure recipients have the resources, tools and network to grow their businesses.

Sendly NBFI JCS, established in 2015, is a licensed international money transfer service for Mongolians abroad. The Company has started cooperation with Golden Money Transfer, Prabhu Money Transfer and Moneytun companies, which have money transfer licenses in 31 states of the United States, and has launched online money transfer application SENDLY.

Business Case

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Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

USD 100 million - USD 1 billion

CAGR
Describes the historical or expected annual growth of revenues in the IOA market.

> 25%

Critical IOA Unit
Describes a complementary market sizing measure exemplifying the opportunities with the IOA.

28 NFBIs provided digital financial services to 4.4 mn customers, equaling 92 percent of total customers.

In 2021, 28 fintech NBFIs provided digital financial services, including loans, payments, factoring, trustee and financial advisory, to 4.4 mn customers which equal 92 percent of the total customers of NBFIs. Fintech NBFIs provided digital loans worth USD200 mn to 1.38 mn borrowers which equal 82 percent of total NBFI borrowers. (5)

Indicative Return

ROI
Describes an expected return from the IOA investment over its lifetime.

15% - 20%

GPM
Describes an expected percentage of revenue (that is actual profit before adjusting for operating cost) from the IOA investment.

> 25%

ROE of publicly traded comparable companies is ~25 percent and their gross profit margins are ~40-50 percent. In 2021, the amount of digital loans provided by fintech NBFIs increased threefold while the number of customers and borrowers doubled.

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Short Term (0–5 years)

Since 2017, the total equity of the LendMn NBFI JSC has increased by 40 percent annually while the net income rose 26-fold.

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Capital - Requires Subsidy

Even when financial services are accessible, low income makes financial services unaffordable. ~60 percent of households earn less than USD 470 per month, implying low disposable income for servicing costs of financial services. (7)

Market - Highly Regulated

NBFIs are licensed by the Financial Regulatory Commission of Mongolia while digital money is regulated and licensed by the Central Bank.

Market - High Level of Competition

Competition has intensified in the fintech industry in the last 2 years with the emergence of many new players. By Q2-2022, the number of fintech lending was ~33. (6)

Impact Case

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Sustainable Development Need

Enhancement in access to financial services for MSMEs will strengthen the resilience of the financial sector. MSMEs account for 90% of enterprises registered in Mongolia, and generate ~50% of jobs in the country, yet ~90 percent of such companies do not have permanent access to bank financing. (3)

Enhancement in access to financial services for rural populations will reduce disparities and improve financial inclusiveness. Mongolia’s financial sector is highly concentrated in urban centers, and unable to serve the rural population and small and medium-sized enterprises. About 80 percent of the loans are extended to borrowers in Ulaanbaatar. (6). Also 81.9 percent of NBFIs are located in Ulaanbaatar (5).

FinTech solutions improve access to finance and increase the bankable and banked population. However, the lack of available capital greatly stifles the development of innovation-driven enterprises. Mongolia is ranked 137/140 by venture availability. A survey conducted by the Mongolian Chamber of Commerce, cost to start a new business and access to finance is top constraints among ICT startups. (9)

Gender & Marginalisation

70 percent of women-led SMEs are not served or are underserved, representing 25 percent of the total credit gap in Mongolia. (2) Lending is limited for smaller businesses, as bank requirements are challenging to meet and there are few alternatives available. There is increasing evidence that financing this gap would not only improve women-led businesses, but the Mongolian economy as a whole. (4)

Increase financial inclusion through FinTech could be a great tool for providing financing for MSMEs, including underserved populations and women entrepreneurs.

Private investment in the financial sector will help to improve financial inclusion by lowering the lending interest rate. As of 2022, the average lending rate of NBFIs is 3.1 perce per month and the average loan amount provided by NBFIs is USD 680 (5).

Expected Development Outcome

By providing small loans to individuals who typically lack access to loans from formal financial institutions, microfinance programs can invest in productive or income-generating activities.

Microcredit for business purposes gives opportunities for low-income individuals to start their own businesses, which contributes to poverty alleviation, decreases income inequality, and increases household income to enable necessary spending on health and education.

Potential reduction in exploitation of MSMEs by informal sources of credit that charge higher rates of interest.

Gender & Marginalisation

Improved access to credit for women-owned MSMEs would lead to improved participation of women in financial decision-making at both the business and household levels.

Promote financial inclusion by mandating ease of access to formal financial services for rural residents.

Primary SDGs addressed

Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth

8.10.2 Proportion of adults (15 years and older) with an account at a bank or other financial institution or with a mobile-money-service provider

Current Value

Proportion of adults with an account at a bank to total population was 90.4 percent in 2021 (5), proportion of rural citizens with an account at a bank to total population in 2019 was 50 percent.

Target Value

According to the National Program on Improving Financial Inclusiveness, it aims to increase the proportion of rural residents with an access to digital finance to 80 percent by 2025.

No Poverty (SDG 1)
1 - No Poverty

1.2.1 Proportion of population living below the national poverty line, by sex and age

Current Value

Proportion of population living below the national poverty line was 28.4 percent in 2018.

Target Value

Reduce the proportion living below the national poverty line to 20 percent by 2025 and 15 percent by 2030.

Secondary SDGs addressed

Gender Equality (SDG 5)
5 - Gender Equality
Reduced Inequalities (SDG 10)
10 - Reduced Inequalities
Industry, Innovation and Infrastructure (SDG 9)
9 - Industry, Innovation and Infrastructure

Directly impacted stakeholders

People

Easy access to affordable financial solutions benefit consumers by increasing their purchasing power and offering an improved quality of life.

Gender inequality and/or marginalization

Providing easy access to finance for women can help empower them by uplifting their economic and social status.

Planet

With the development of FinTech, businesses can leverage technology, thereby reducing carbon footprint and protecting the environment from degradation.

Corporates

MSMEs benefit from easy access to affordable and innovative financial solutions which support their expansion. They also benefit from a potential reduction in exploitation by informal sources of credit that charge high rates of interest.

Public sector

Strengthening of MSME community through affordable financial solutions would result in increased employment generation and higher tax revenue, thereby resulting in sustainable local and national economic growth.

Indirectly impacted stakeholders

People

People benefit from increased employment opportunities derived from job opportunities closer to their hometowns.

Gender inequality and/or marginalization

The number of unemployed, marginalized, and low income individuals who use informal lending with higher interest rates will decrease, thereby improving their quality of living and increasing their disposable household income.

Planet

Promoting the usage of digital solutions can reduce CO2 emissions as it reduces travel requirements.

Corporates

Corporates will benefit from increased sales induced by growing purchasing power.

Public sector

The government can reduce its public spending on social welfare that supports people with unemployment.

Outcome Risks

A potential cyber attack can impact the economy adversely with leakage of private customer information and confidential financial data. Banks may perceive lower demand for their traditional financing products due to the availability of products offered by NBFIs.

Abuse of the system and lack of loan repayment. Potentially low loan repayment rates - due to lack of recorded credit history - may result in high-interest rates.

Gender inequality and/or marginalization risk: Considerable investment required for improving financial literacy.

Impact Risks

Low financial literacy, limited internet connectivity and low digital literacy might limit the efficacy of services offered. If the borrowers' potential to repay microcredit and monitoring of investment plans are not carefully considered, borrowers' financial burden may get aggravated.

Consumers may be dragged into a debt-trap, using new loans to repay old ones. Low-income borrowers have a high default risk that can affect the sustainability of a micro-credit operation.

Gender inequality and/or marginalization risk: If consumer protection measures are not adequately implemented there is a risk of negative outcomes impacting social and financial resilience of consumers, especially from low income households.

Impact Classification

C—Contribute to Solutions

What

Provision of accessible and affordable financing solutions to expand purchasing capacity of underserved /unbanked communities and contribute to economic growth.

Risk

Risk of default (failure to repay) or over-indebtedness might limit the scope of the investment opportunity area.

Contribution

In 2021, 28 fintech NBFIs provided digital financial services to 4.4 million customers which equals 92 percent of the total customers of NBFIs.

Impact Thesis

Increase financial inclusion and provide affordable and accessible financial services through fintech NBFIs to unbanked populations and businesses.

Enabling Environment

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Policy Environment

Mongolia's 5-Year Development Guideline 2021-2025 and Action plan includes plans to increase the income of the population and reduce poverty by improving financial inclusiveness and providing affordable financing solutions.

National Program on Improving Financial Inclusiveness includes objectives to develop micro-lending institutions, improve the financial literacy of the population as well as promote new technologies in the financial industry.

The Law on electronic signature, the Government's Digital Nation Policy Document and E-Mongolia Initiative aim to accelerate the development of the technology industry.

Financial Environment

Fiscal incentives: The Law on Corporate Income Tax: A tax credit of 90 percent is available to a taxpayer whose revenue is less than USD450 mn and operates in industries other than mining, petroleum, alcoholic beverage, and tobacco.

Regulatory Environment

Mongolia does not have significant entry or exit barriers for businesses, and the economy is highly open to foreign trade and investment, except for investment by foreign government-owned legal entities under the Investment Law.

NBFIs are required to get a license from Financial Regulatory Commission of Mongolia.

According to the Law on Investment, the banking and financial sector is considered a strategic sector which will require to get permission from the authority if any foreign state-owned investor seeks to invest more than 33 percent of the total outstanding shares for the company.

Marketplace Participants

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Private Sector

Companies: LendMN NBFI JSC, Invescore NBFI JSC, Numur Credit NBFI LLC, Sendly NBFI JSC Investor: Rhinos Asset Management of Korea

Government

Ministry of Finance, the Central Bank of Mongolia, Financial Regulatory Commission, Ministry of Digital Development and Communication,

Multilaterals

European Bank for Reconstruction and Development, International Finance Corporation, Asian Development Bank

Non-Profit

Mongolian Fintech Association, Mongolian Sustainable Finance Association, Mongolian Bankers Association.

Target Locations

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country static map
urban

Mongolia: Ulaanbaatar

Fintech service is nationwide. However, 81.9 percent of Non-Banking Financial Institutions (NBFIs) are located in Ulaanbaatar. (5)

References

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