RURAL FINANCE COMPANY MODEL PROJECT

       The Rural Finance Company Model Project (RFCMP) commenced in 2005 and continued on for over 3 years with an incentive to design and pilot an unique rural financial institution model that is owned by and accountable to the local community of the soums of Mongolia. The core concept of the project is to develop a community based rural finance company, which fundamentally changes the nature of financial services in rural areas and intends to facilitate economic participation of the households in their local economy which subsequently influences positively to their livelihood. Out of 50 other project proposals, Achid Finance Group’s project received the grant from UNDP “Enterprise Mongolia” project and Ministry of Trade and Industry to support microfinance services. Achid Consulting mainly undertook the technical assistance and implementation procedure, on the other side Achid NBFI acted as the strategic investor and provided with the necessary capital for the RFC.
       An initial field research and need assessment were conducted in several rural regions which indicated shortage in financial services that meets the herders’ unique financial demand. Based on the needs assessment and field research results, Achid’s experts and advisors modeled a Rural Finance Company that strictly responds to and reflects the need of rural communities. The RFC’s 5 major characteristic makes it unique from the then existing financial institutions.

  • Non-Banking Finance Institution form
  • Publicly owned
  • Strategic investor
  • Good governance
  • Cooperation with other financial institutions such as banks etc.

       Two project sites were chosen on their geographic, demographic and market factors. The project sites are Tarialan soum of Huvsgul aimag located in the Hangai region with well-developed infrastructure and relatively high market competition, contrarily Bayantsagaan soum of Bayanhongor aimag is in the Gobi region with poor infrastructure and low level of market competition. The opposing characteristics of the project sites play an important role in post-implementation comparative study.
       A vital part of the project and its success depended on the project approval by the local citizens and their government. Fortunately, locals have welcomed the project extensively and the local governing bodies have supported the project on all stages of the project. Once the investments were made and sides expressed their interests, the organizational structure took its shape with the Board of Directors, CEO, and other staffs. On-site advisors were stationed to provide with technical assistance and training, advisers were still at site well after the project was completed to fully ensure the operation to become normalized.

Training module and technical assistance:

  • Company’s governance, ownership structure and legal regulations
  • Introduction to mission statement and strategic goals
  • Roles and Responsibilities of the shareholders
  • Company’s control system
  • Marketing
  • Risk management
  • Risk assessment methodology
  • Loan and operational risk management
  • Financial risk management
  • Human Resource Management
  • Asset and Liability management
  • Lending operation
  • MIS
  • Planning and performance monitoring

Project result and highlights

       With Achid Group’s exhaustive amount of effort, the first ever Non-Bank Financial Institution – Hugjil Badrah in Tarialan soum with 7 founding members and a capital of 1’000’000 MNT has commenced its operation.  In Bayantsagaan soum, the very first NBFI successfully took its first steps with 43 founding members and 3’100’000 MNT of starting capital. Overall the project had multiple noteworthy characteristics. Specifically, Achid NBFI was a major shareholder of the 2 RFCs as it provided with 35’000’000 MNT to both RFCs and was involved in the project as a strategic investor to ensure accountability of the company in strengthening of governance, management, staff capabilities and full testing of the model. However, disregarding the fact that the company was a major shareholder, the NBFI’s shareholder rules explicitly disabled dominance in decision making to ensure equality in governance . Moreover, once the project approached its end date, “Achid Finance Group” Co. Ltd completely transferred its share to the community as the core concept of the RFC Model was to be community-based.
Now we are proud to say the NBFI is still soundly serving its community.

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