URBAN CREDIT UNION DEVELOPMENT INITIATIVE 2004-2007

Canadian Cooperative Association (CCA) co-sponsored 3 years long Savings and Credit Union strengthening initiative. Many thanks to our CCA consultants!



In the early 2000s credibility of urban Savings and Credit Unions (SCU) was going downhill. Inevitably, such accommodated risk of decreased public confidence whilst hindering its potential to growth and development. With this observation, Achid and CCA have taken a cosponsored initiative to counter the situation with bottom-up approach. The project started in 2004 and continued for over 3 years with a team of 20 people including 3 technical co-operants from Canada and 17 Mongolian specialists.


The project consists of 4 phases where first two phases aims to strengthen the operation of 9 SCUs in 4 major management areas. Then the third phase followed with aim to strengthen the SCU infrastructure and put more emphasis on second tiers such as creating SCU Holboo (association) with vision that fosters the development of SCUs. We have recommendations for effective governance standards, prudential operating standards, and conducted an initial risk assessment for licensing of credit unions. Fourth phase took the project focus to the regulatory level. We made recommendations and designed regulatory action plan to the Financial Regulatory Commission (FRC) in order to create a proper regulatory environment and standard for SCUs.


In 2005, our project has successfully overcome one of its biggest challenges and demonstrated the vital role that it played in seriously strengthening SCUs. After the first two phases of the project, the overall credit union environment has significantly deteriorated and large number of SCUs has announced their default and shut down. However, the 9 SCUs that were part of our project continued on with their operation soundly where approximately 10 billion tugrugs of asset was protected. Such demonstrated the need to proceed with our project to next stages and to operate on larger scale. Thus, the third and fourth phases were crucial as it strengthened the entire SCU market and infrastructure systematically.


Phase I, II – Strengthening the 9 SCUs in their 4 key management areas:

The main objective of the project is to strengthen 9 selected SCUs’ operation and create exemplary SCUs on market. By strengthening their operation, it was anticipated that other SCUs would follow their path and thrive on it. Eventually, it was expected that SCU operation will be standardized and serve the purpose of reaching out to the socio-economic sector that is most in need of SCU service.


9 SCUs were selected based on their (correct) principle of operation. The project primarily focused on providing with technical assistance in four major management areas of the SCUs - human resource management, strategic management, risk management, and management information system (MIS).

“All of our participating SCUs were able to overcome the SCU crisis which had a significant damage on the financial market as well as to the people.”

The first step of the project is risk assessment for each SCUs, experts identified that one of the major risk areas of cooperatives were governance related issues. Thus, several governance related activities were designed and conducted: one-on-one consultation, designed governance related risk mitigation activities, kept on-going monitoring and feedback on the implementation of the governance related risk management plans and provided TAs when required, designed the model policies and procedures such as Board policy, Supervision and Loan committee procedures, election procedure, model contract between executive director and board, and other related procedures.


Secondly, the key elements of the strategic planning have been introduced to the 9 SCUs. The local consultants supported the SCU leaders to define their own strategic aims, goals and specific objectives in the framework of external environment and internal factors analysis. The Strategic management assistance focused on providing guidance to the SCUs to develop their long term strategy that is suitable for their own specific identities. Thus, individual workshops were organized for each SCU. Also, the SCU sector-wide strategic issues were duly analyzed and SCUs learnt how to better cope with expected possible positive or negative changes.


During the HR assessment of credit unions we have noticed that weak policy and lower emphasis on human resource functions are likely depend on the capacity and size of particular credit union. Therefore, project team has decided to design effective human resource policies for credit unions and developed model HR policies such as staff salary and benefit system, job descriptions and templates of labor contract and others. Also, we have conducted human resource management training workshops for the SCU staff and visited the credit unions to discuss and review their human resource issues in more details.


As the final stage of the phase, MIS need assessment was conducted and informed the SCUs about MIS’s vital role in accurate measurement of performance as well as the significance in keeping track of operation. The specialized MIS technical assistance team has reviewed current MIS level of each SCU and handed out MIS assessment report to them. The report also incorporated the recommendations for further improvement of their MIS and the changing traditional view of MIS has been fully changed in the participating credit unions.

Qualitatively, the project increased SCUs’ asset quality, yields of asset increased, liquidity reserve increased and maintained depositors’ confidence, and as a result of risk management technical assistance, the high growth with lower quality strategy has been changed with moderate level of growth emphasizing long-term financial sustainability. Quantitative success-wise, SCUs have learnt risk management tools and understood importance of regular risk monitoring process and SCUs have learnt the practices of appropriate loan classification, delinquency reporting, and financial knowledge on building sufficient loan loss provision. All the policies were updated and communicated in relation to cooperative reserve, net-institutional capital, dividend strategy. Lastly, institutional internal systems, such as accrual accounting system, delinquency control system, MIS, governance, HR systems and planning and internal control systems have been redesigned, updated and standardized throughout the project implementation.


Phase III – Recommendations for effective governance standards and prudential operating standards:


A Discussion paper entitled “Prudential Ratios and Licensing Requirements’ was prepared in Phase III of the project, which took place in 2006. This paper discusses the prudential policy standard requirements for Mongolian Savings and Credit Unions. It also presents risk classification categories that could be used to risk rate of newly licensed credit unions. Prudential performance standards are an important part of the professionalization of credit unions. However themselves they are mere calculations and must be supported by effective governance. The standards can be used effectively as performance improvement benchmarks against which the effectiveness of technical assistance can be measured. It is envisaged that this technical assistance should be coordinated through the Holboo and delivered in a professional, continuous way.


The prudential ratio recommended to and adopted by FRC can be summarized as below:

1. Delinquency <5% of Loan Portfolio

2. Requirements for allowance for loan losses based on Bank of Mongolia requirements

3. Liquidity and long-term borrowings

4. Capital

5. Total deposits as a % of deposits and shares >80%

6. Net loans as a percentage of total assets >70%

7. Fixed assets <5% and other assets <5%

8. Operating expenses as a %of total average assets <5%


It was important that the new Holboo supports the local environment and helps rebuild confidence in prudentially managed credit unions that adhere to cooperative principles. The first Assembly established the Mongolian Confederation of Credit Unions on December 21, 2016.


Phase 1 (June 2004 – December 2004)


1. Risk Assessment and Mitigation Plan

a. Moncord Savings and Credit Union

b. Cydan Savings and Credit Union

c. SidyCo Savings and Credit Union

d. Bisan Savings and Credit Union

e. Credit Union Mongol

Risk Management Training

2. Strategic Planning

a. Moncord Savings and Credit Union

b. Cydan Savings and Credit Union

c. SidyCo Savings and Credit Union

d. Bisan Savings and Credit Union

e. Credit Union Mongol

3. Human Resource Training

a. Moncord Savings and Credit Union

b. Cydan Savings and Credit Union

c. SidyCo Savings and Credit Union

d. Bisan Savings and Credit Union

e. Credit Union Mongol

4. Management Information System Development

a. Moncord Savings and Credit Union

b. Cydan Savings and Credit Union

c. SidyCo Savings and Credit Union

d. Bisan Savings and Credit Union

e. Credit Union Mongol


Phase 2 (September 2005 – December 2005)


· Risk Management and Governance

o Effective Governance Review – Gravi Savings and Credit Union

o Risk Management Assessment

§ Aguuch Savings and Credit Union

§ Arvinden Savings and Credit Union

§ Delger Credit Savings and Credit Union

o Effective Governance Workshop

o Risk Management Training

o Developing and Implementing the Risk Mitigation Plan Workshop


Phase 3 (April 2006 – May 2006)


· Macroeconomic Framework Development

· Macroeconomic Support System Framework Schematic

· Concept Paper On The Improvement Of Credit Union Macro

· Environment – The Regulatory Action Plan

· Stakeholders Meeting – Credit Union Macro-Environment

· Project Evaluation On Implementation Capacity

· Strategic Programming Initiative – Gravi Savings And Credit Union

· Legislation Working Group Development


Phase 3 (September 2006 – December 2006)


· Developing the Legislation

· Establishing the Holboo

o Stakeholder Development – Roles and Responsibilities

o Savings and Credit Union Development Strategy

· Discussion paper on Prudential Ratios and Licensing Requirements

· Regulatory Action Plan

· Focus Group Discussions


Phase 4 (January 2007 – December 2007)

· Training for the Confederation (MOCCU) – New Holboo

· Training for FRC Monitoring Department

· Technical Report Analyzing the Restructuring of Existing Central Finance Cooperative (MONCU)