MICROCAPITAL STORY: Mongolian Microfinance Institution XacBank Launches Cellphone Banking Service with Support from CGAP

XacBank, Mongolia’s largest microfinance institution, and the Consultative Group to Assist the Poor (CGAP), a microfinance think tank housed at the World Bank, announced the launch of a new mobile phone banking service with a target audience of 300,000. CGAP is providing XacBank with financial and technical support. The new service is targeted toward the rural population of Mongolia, with the goal of increasing the availability of services such as deposits, withdrawals, loans, remittances, and cash transfers. The project is expected to launch in 2009.

Mongolia has one of the lowest population densities in the world of approximately one person per square kilometer, according to XacBank’s CEO Ganhuyag Chuluun Hutagt. “Mobile phone banking services will have a considerable impact in offering wider access, convenience and cost-efficiency, as well as increased speed and reliability for transactions.” According to Gautam Ivatury, CGAP’s Technology Program Manager, 40 percent of Mongolians use solely cash today, and according to XacBank’s market research 50 percent would welcome the availability of mobile banking services at local merchants. XacBank’s project will be implemented in partnership with local mobile phone service providers and a cash-handling network of local merchants.

CGAP had previously worked with XacBank through CGAP’s Pro-Poor Innovation Challenge (PPIC), which provides grants of up to USD 50,000 for technical assistance and other expenses related to programs to extend financial services to poor populations. XacBank directed the PPIC funds to extend its Development Guide program, which establishes savings and credit cooperatives in rural areas through a franchising model.

XacBank was created in 2001 following a merger between Goviin Ekhlel LLC and X.A.C. LLC, the two largest non-bank financial institutions in Mongolia. According to the MIX Market, as of December 2007 XacBank had total assets of USD 122.7 million and a total loan portfolio of USD 85.2 million with 59,793 active borrowers. In 2007 it earned a return on equity of 23.96 percent and had a debt to equity ratio of 984.23 percent. The organization was favorably rated by Moody’s in March 2008 with a Ba2 foreign currency issuer rating and a stable outlook. As previously reported by MicroCapital, in January 2008 the International Finance Corporation (IFC) made a USD 3 million investment in XacBank for a 10 percent equity stake.

By Jocelyn Cheng, Research Assistant

ADDITIONAL RESOURCES:

CGAP Press Release: Mobile Phone Banking to Reach Rural Mongolia

CGAP: Winners of Round Eight of the PPIC

ePaynews: Cellphone Banking to Reach Rural Mongolia

MicroCapital.org article, January 22 2008: International Finance Corporation (IFC) Makes a $3m Equity Investment in Mongolian Microfinance Institution XacBank

The MIX Market profile for XacBank: http://www.mixmarket.org/en/demand/demand.show.profile.asp?ett=38&

Moody’s Rating Reports: http://www.mixmarket.org/en/demand/demand.show.profile.asp?ett=38&

Upsides newsletter: “Nomadic Banking.” (p44-45). 30 Oct 2007

XacBank: http://www.xacbank.org/index.php

XacBank: Leapfrogging Access to Financial Challenges with Mobile Phones. Next Generation Access to Finance. 17 Sept 2007.

XacBank Press Release: Mobile Phone Banking for Rural Mongolians: XacBank Selected as CGAP Technology Partner