Nine years ago, Avarzed could not have gotten a small business loan anywhere in her province, even if she had possessed 10 times the value in collateral (which she didn't). She lives in the province of Dornogobi, part of the Gobi Desert in Mongolia, a land-locked country between China and Russia known for harsh winters, arid steppes and nomadic herders. In this country, 2.9 million people are spread out over a land the size of Western Europe, although more than a million of them live in the capital city of Ulaanbaatar.
Avarzed was a single mother with three children in school, barely making ends meet by operating a small kiosk selling food and sundries. Then she got her first loan; she used the US$80 to buy more goods to sell in her kiosk. "I am grateful that someone trusted me, and I have always tried to repay my loans on time because of this," she says.
Today, she is putting one child through university in Ulaanbaatar, lives in a three-room apartment and owns her own shop. She used her latest loan of US$6,000 to expand her stock, buying stationary and beauty products. However, in the provincial capital where she lives, retail is not the only sector seeing growth: There are now six banks operating in this desert town of 19,000 people.
Increasing Competition
Mongolia is just one difficult environment where microfinance -- the business of providing financial services in small transaction amounts to poor, underserved markets -- has taken off in the past five years. But its experience showcases some of the changes now buffeting the industry as microfinance institutions (MFIs) and their markets mature, private investors arrive on the scene in force and traditional microfinance values are questioned.
The Mongolian Central Bank "made some smart reforms in the late 1990s, which helped the banking sector really take off in the ensuing years," says Ganhuyag Ch. Hutagt, CEO of XacBank, a Mongolian microfinance bank.
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