The Agricultural Bank of Mongolia: From Insolvent State Bank to Thriving Private Bank
Started in 1991, the Agricultural Bank of Mongolia (Ag Bank) was facing possible liquidation in 1999. It was the most important rural financial services provider and hence concerted efforts were made by international donors and the government of Mongolia to save it. The bank turned around and was privatized in 2003.
The results are impressive. One out of every two rural households in Mongolia uses Ag Bank, and its deposits have multiplied four times. The bank presently reaches 98% of the rural communities in Mongolia.
To turn the Ag Bank around, the management team developed:
- New initiatives in lending, deposits, marketing, training and controls;
- Loan and deposit strategy to develop and diversify products, attract more customers, expand coverage and lessen dependence on government funds;
- Various types of loans, deposits and transfer products for different clients.
The authors state the challenges with project implementation as:
- Sustainability and privatization;
- Political issues;
- Credit culture;
- Staff culture;
- Brand and image of the bank.
The paper highlights the main lessons learned as:
- Understanding of market potential and good marketing;
- Protection, patronage and independence from the government;
- Development of an internal culture with training inputs;
- Good information systems and competencies of the management;
- Strong donor support;
- Understanding of finance.
The authors conclude by remarking that a virtuous cycle of growth can lead to good returns, and this can happen in state-owned banks as well.
