The encyclopedia · Finance & Accounting · Strategic decision · 2001–2007
XacBank merged two lenders into Mongolia's microfinance bank
Mongolia's two biggest non-bank lenders merged into XacBank, a commercial bank and primary microfinance provider — later its first syndicated-loan borrower.
XacBank · X.A.C. · Goviin Ekhlel
The solution
Mongolia in the early 2000s had little formal finance, especially outside the capital. X.A.C. was the largest microfinance institution in the country, serving about 4,000 clients with an outstanding portfolio of about US$1.0 million and total assets of about US$1.5 million.
IFC's 2001 investment proposal set the goal explicitly: develop XAC into a commercially sustainable microfinance institution, with the possibility to expand into a microfinance bank, with support from the governments of Finland and CGAP, Triodos Bank and Shorebank. The merger of X.A.C. and Goviin Ekhlel (GE) created XacBank, documented in the 2002 study Mergers in Microfinance: Twelve Case Studies as one of the successful mergers, with lessons about trust, communication and finding a neutral outsider.
XacBank and Khan Bank became Mongolia's primary microfinance providers. A 2007 FinDev paper found that both followed international best practices from the start, even though the supervisory bodies did not require it.
By 2019 XacBank was a commercial bank: IFC arranged a US$65 million loan — the first syndicated loan to a Mongolian commercial bank — with US$5 million from IFC's own account and US$60 million syndicated from DEG, Proparco, FMO, SIFEM and FinnFund, to support more than 44,000 micro, small and medium enterprises.
Why it worked
- A banking license opened deposit funding that an NGO-form lender could not legally tap.
- Merging concentrated talent, systems and client bases instead of duplicating them.
- IFC and partners brought long-term capital plus technical assistance for strategy.
- Voluntary best-practice discipline made the bank credible enough for the first syndicated loan.
What can be applied
When regulation sets a size bar for a banking license, merging two mid-size lenders can clear it: scale unlocks deposit funding and international capital neither could raise alone.
Aftermath
By 2019 the transformation had paid off at scale: IFC's US$65 million facility combined US$5 million of its own money with US$60 million from five development finance institutions, targeting over 38,000 additional micro loans and more than 6,700 additional small and medium enterprise loans, with the goal of creating jobs and promoting economic diversification in Mongolia. The bank that began as a merged pair of non-bank lenders had become the country's first recipient of a syndicated loan to a commercial bank.
Sources
- 10500 - SEF XAC-Microstart Mongolia
- Mergers in Microfinance: Twelve Case Studies
- Microfinance Regulation and Supervision in Mongolia
- IFC Provides $65 Million to XacBank to Expand Lending to Small Businesses in Mongolia
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