Ulaanbaatar, Mongolia, July 9, 2024—To bolster Mongolia's sustainable-finance market and create jobs while increasing resilience, IFC is investing up to $100 million in the country's first-ever social bond, which will be issued by Khan Bank, the country's largest commercial bank.
The total amount of the bond is up to $130 million, which includes $30 million to be subscribed by potential co-investors. The three-year social bond will follow the International Capital Market Association (ICMA)'s Social Bond Principles. IFC has advised Khan Bank to develop its Social Bond Framework which is verified by Sustainable Fitch through a Second Party Opinion (SPO). The bond proceeds will be used to fund projects across healthcare, education, food and agriculture, affordable basic infrastructure, and affordable housing, with a focus on micro, small, and medium-sized enterprises (MSMEs) - especially women-owned businesses, which account for most smaller companies in Mongolia - in underserved and rural areas.
MSMEs account for 72 percent of Mongolia's workforce and contribute 17.8 percent of its GDP, but they have limited access to finance. According to the World Bank Enterprise Surveys (2019), 31 percent of surveyed companies in Mongolia face full credit constraints, surpassing the average for other countries in the East Asia and Pacific region. In response, the government of Mongolia is focused on strengthening MSMEs. Given a high unemployment rate and lower labor participation, the goal is to create more jobs, ensure sustainable growth, and diversify the country's economy while reducing its reliance on mining.
Mongolia also launched its Sustainable Development Goal (SDG) Finance Taxonomy in 2023 to catalyze funding for sustainable investments with four additional social financing categories — Information and Communication Technologies, Health, Education and Culture, and Affordable Basic Infrastructure. A recent report estimates that an additional $43 billion in funding is required to meet the SDGs in Mongolia by 2030.[1] This is the first social bond to be issued in the country to support the launch of this SDG Finance Taxonomy.
"This landmark issuance will help us specifically support our clients' projects and activities that have significant positive social impacts and benefits and expand financial access to target segments of the country," said Munkhtuya Rentsenbat, the CEO of Khan Bank. "As the largest bank in the country, Khan Bank is leading by example to create a positive impact by enabling financial inclusion, economic empowerment, and promoting environmental sustainability."
IFC invested in Mongolia's first green bond, also issued by Khan Bank, in 2023, and launched an advisory collaboration with the bank to expand climate finance this year. Previously, IFC also arranged a $130 million syndicated loan for Khan Bank to support MSMEs.
"As one of the pioneering issuers of social bonds and a leader in developing guidelines for such instruments, IFC is well-positioned to support first-time issuers like Khan Bank," said Rufat Alimardanov, IFC's Resident Representative for Mongolia. "Through this investment, IFC will enable a leading market player to attract funding for eligible social projects while establishing social bonds as a new long-term asset class in Mongolia."
Over the past decade, IFC has been a strong supporter of Mongolia's sustainable finance development. IFC helped the country develop and adopt the environmental and social risk management requirements for commercial banks. With the government of Japan's support, IFC also helped formulate Mongolia's Green Bond Regulation and Guideline documents, enabling the issuance of green bonds in the local market.
Since launching its Social Bond Program in 2017, IFC has issued over $8 billion through 92 social bonds and taps in 14 currencies.
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IFC — a member of the World Bank Group — is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2023, IFC committed a record $43.7 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of global compounding crises. For more information, visit www.ifc.org
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[1] UNDP, "Mongolia Spending Needs for Reaching The SDGs", https://www.undp.org/mongolia/publications/mongolia-spending-needs-reaching-sustainable-development-goals
