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Mongolia: Microfinance Loans to Build, Sustain Rural Businesses

June 1, 2010

  • Since the Sustainable Livelihoods Program began, more than 32,000 loans have been dispersed by banks and non-bank financial institutions
  • Almost half of the microfinance loans have gone to households under the poverty line
  • More than 150,000 Mongolians are benefitting either directly or indirectly from the loans

ULAANBAATAR, June 1, 2010 - Living conditions are harsh in Mongolia. Daily average temperatures drop to a bitter minus 30 degrees during the long winter months, and sparse employment opportunities, especially for those out in the countryside, make earning a successful living a day-to-day struggle for many families.

Small business owner Oyunbileg Rentsen has been able to establish her own shoe repair shop in the Bayankhongor aimag* (an aimag is a district in Mongolia; Mongolia is divided into 21 aimags), in Southern Mongolia, and to successfully sustain her business for many years thanks to the low interest loans available through financial institutions supported by the Sustainable Livelihoods Project (SLP).

Revenue from her business has enabled the widow, mother of four and sole breadwinner to support her family, pay for the education of her youngest daughter in the county’s capital Ulaanbaatar and employ another local woman to work with her.

"I really needed money to start up my business. I researched loans that were available, and chose one through the SLP project because it had a low interest rate. My first loan, of two million tugrik (approximately US$1500), was in 2004 and since then I have applied for the loan another 10 times. I use the money to buy materials to repair shoes," said Oyunbileg.

Oyunbileg and her employee Munkhchimeg Nyamkhuu work together on a small table behind the service counter. They sit on plastic chairs and chat quietly, stopping to serve local customers coming in to the busy shop. The shelves on either side of the shop are overflowing with shoes awaiting owners, wooden moulds, glue and other equipment. The only other thing in the small repair shop is a wood burning stove keeping everyone warm.

“People ask me about my business and how I’ve managed to sustain it for so long. I tell them about the loans I receive through the financial institution. I explain the process for getting a loan,” said Oyunbileg.

High demand for quick, easy to repay loans

Supported by The World Bank and partners, the SLP was established to combat the growing disparity in poverty reduction between Mongolia’s urban and rural areas. Even though Mongolia is experiencing an increase in rural to urban population movement, 43 percent of Mongolian people still live in rural areas and nomadic herders are the single largest group among Mongolia’s poor.

Microfinance loans are dispersed through local SLP partnering institutions and according to Batsukh Shijir, director of the Bayankhongor branch of a SLP-funded, non-bank financial institution, demand is very high.

“Over the last six years, 600 people have received loans in this aimag. It is very easy to obtain a loan. Loan applications are usually processed in one day.

“The loans have also been useful for people struggling with the aftermath of the global financial crisis. There are many businesses that need money to help them through this difficult time and herders need money for agriculture products, food and grass for their livestock during wintertime.

“Most importantly, we make sure our loans remain small, as people who have taken out larger loans from banks have had a lot of difficulty paying them back,” said Batsukh Shijir.

Paying forward by creating more work and teaching skills

Business is going well for Oyunbileg, especially during the winter months when there’s an influx of customers. This, of course, makes her loans much easier to pay back. Most of the time Oyunbileg and Munkhchimeg work six days a week from 8:00 a.m. until midnight. Oyunbileg is hoping for a short holiday in Spring, but only if the shop is quiet. And if business continues to improve, she hopes to employ another person.

Like Oyunbileg, Munkhchimeg is also a widow, mother of four and the sole bread winner for her family. She is very grateful for the job she has had for the past two years as it enables her to provide for her family of five. It provides her with a livelihood.

Oyunbileg would like to create more jobs in the aimag so she can teach other people skills that can empower them to earn a living, just like she’s been able to do for Munkhchimeg.

32-year-old Tumenjargal also received a small loan through the Sustainable Livelihoods Project. She used the loan to build her weaving business; to buy a machine, wool and other equipment necessary to make scarves, hats and jackets from the wool of camels and cashmere goats.

Tumenjargal works throughout the day and into the night from a corner of her family’s ger (the traditional Mongolian living structure also known as yurt), with a single lamp providing just enough light for her to hand thread the colorful wool in and out of the machine. Her meticulous dedication to her wares produces perfectly made products which she sells at a nearby market stall and to local businesses and families she visits door-to-door. Tumenjargal is pleased that she’s able to help support her family financially.

“This is the third time I have received a loan, each time I receive one million tugrik (about US$750). In the future I have plans to expand my business. This machine I have is for thick materials, and I would like a machine to weave more high quality cashmere,” said Tumenjargal.