3 years long project with an incentive to design and pilot an unique rural financial institution model.
The Rural Finance Company Model Project (RFCMP) commenced in 2005 and continued on for 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 the 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 was in charge of the technical assistance and implementation procedure while Achid NBFI invested in the RFC.
An extensive amount of effort was dedicated to field research and need assessment in several rural regions which concluded that herders’ unique financial demand are not sufficiently met through the existing financial institutions. Following the needs assessment, RFC modeling started accordingly and decided that it should 5 have main characteristics:
1. Non-Banking Finance Institution form
2. Publicly owned
3. Strategic investor
4. Good governance
5. Cooperation with other financial institutions such as banks etc.
Then two project sites were chosen based 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. Difference In site characteristic enables post-implementation comparative study.
Then the RFC model was introduced to the local communities and provided them with the basic concept. As the project was very well-received both by the governing body and the locals, next stage proceeded rapidly with developing effective governance and appropriate ownership structure of the financial institution. 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.
"We are always proud to see Khugjil Badrakh NBFI is still running soundly to this day, serving its community."
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
- Risk management
o Risk assessment methodology
o Loan and operational risk management
o Financial risk management
- Human Resource Management
- Asset and Liability management
- Lending operation
- Planning and performance monitoring
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 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.