Appraisal Document for XAC Mongolia

This document was written with the dual purpose of providing an evaluation of XAC's operations and performance and documenting the transformation process of this impressive and promising MFI for the microfinance community. XAC uses a unique individual loan methodology to provide loans to microentrepreneurs in Mongolia and although a start-up MFI, XAC is highly professional and dedicated to viability. XAC is also the first non bank financial institution in Mongolia (NBFI) and the first regulated MFI.

The report shows that the XAC's performance has been impressive and in just 2 years of operations, the MFI has:

• Established a network of 11 branches, managed a loan portfolio of USD $375,000 serving over 2,200 clients;
• Maintained an excellent portfolio quality (PAR 30 days is 0.6% as of June 2000) and reached operational sufficiency after 18 months of operations;
• Been instrumental in the development of an appropriate regulatory framework for NBFIs and for the promotion of a sound business environment for microentreprises.

However, there are challenges ahead for this young institution if it is to grow from a small MFI to a fully-fledged commercial bank. The analysis shows that XAC's main weaknesses are currently:

• Weak governance;
• Lack of standardization and enforcement of procedures and internal control;
• Inadequate management information systems to cope with the growth of the institution;
• Operational efficiency is low compared to microfinance best practices for individual loans.

In conclusion, the CGAP Secretariat recommends that XAC:

• Review its business strategy to address the above weaknesses;
• Better define its marketing strategy and its branch model in rural and urban areas;
• Reengineer its operations to improve efficiency.