49513 - DCM Khan Bank Social Bond

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Summary of Investment Information

Project Number

49513

Company Name

KHAN BANK JSC

Date SPI Disclosed

May 13, 2024

Country

Mongolia

Region

East Asia and the Pacific

Projected Board Date

Jun 21, 2024

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Aug 18, 2024

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 26, 2024
Signed : Jun 27, 2024
Invested : Aug 15, 2024

Sector

Commercial Banking - General

Project Description

The proposed investment entails IFC’s investment in a 3-year Social Bond to be privately issued by Khan Bank JSC (“Khan Bank” or the “Bank”) of up to US$100 million (the “Bond”). The proceeds of the Bond will be used to expand Khan Bank’s social financing portfolio by financing eligible social projects as defined by the Social Bond Framework (“SBF”), which will adhere to the International Capital Market Association’s (“ICMA”) Social Bond Principles and verified by Second Party Opinion (“the Project”). The Bond will be the first social bond in Mongolia. The Project is the continuation of IFC’s efforts to promote financial inclusion and thematic financing in Mongolia.

Associated Advisory Engagement

The Project will be complemented by an IFC advisory project, which aims to support the Bank to (i) establish the SBF including eligibility criteria, (ii) conduct ESG capacity building to implement ESMS and guide the Bank to develop social impact management system for the social bond portfolio.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	100.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Loans to Woman-Owned SMEs
Straight Senior Loan	Loans to MSME (mix of Micro and SME)
Straight Senior Loan	Labeled: Green;Blue;Social-Loans/Bonds
Syndications	Loans to Woman-Owned SMEs
Syndications	Loans to MSME (mix of Micro and SME)
Syndications	Labeled: Green;Blue;Social-Loans/Bonds

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

Project Outcome: Stakeholder Effects – Increased access to finance for social projects including MSMEs and WMSMEs: IFC anticipates that, through Khan Bank, the Project will increase access to finance of MSMEs, WMSMEs, and further grow eligible social financing portfolio of Khan Bank, especially in the rural areas, healthcare, and education. Market Creation: Sustainability: IFC anticipates that this Project will contribute to enhancing sustainability of financial market in Mongolia, as IFC will support a systemically important bank to issue the country’s first social bond. The social bond will follow Social Bond Principles, in line with international standards, thus setting the standard in the market through demonstration and replication to lead to future social bond issuances, and contributing to the development of this new asset class in the capital market.

Financial Additionality: Innovative Financing Instrument: Through the proposed investment, IFC will support the issuance of the first social bond in Mongolia, which follow ICMA Social Bond Principles. The Project is a continuation of IFC's efforts to promote financial inclusion and thematic financing in Mongolia and will help introducing a new asset class to the Mongolian capital market. Non-Financial Additionality: Knowledge, Innovation, and Capacity Building: The proposed investment will be complemented with IFC’s advisory service with particular focus on (i) evaluating the Bank’s eligible social bond portfolio; ii) establishing the SBF which meets international standards including eligibility criteria, project evaluation and indicators/benchmark; and iii) ESG capacity building and guiding the Bank to develop social impact management system for the social bond portfolio.

E&S Category Rationale / Risks and Mitigation

The proposed Project entails an IFC’s investment in a social bond to support eligible social subprojects consistent with the International Capital Market Association’s (ICMA)’s Social Bond Principles. The bank is primarily exposed to consumer and SMEs finance. Higher E&S risk activities including those involving (a) involuntary resettlement, (b) risk of adverse impacts on indigenous peoples, (c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, (d) risk of significant retrenchment or (e) significant occupational health and safety risks, will not be eligible for financing from the proceeds of the Project. Coal-related activities including coal mining, coal transportation or coal-fired power plants, as well as infrastructure services exclusively dedicated to support any of these activities, will not be supported by this Project either. The Project has been categorized as FI-2 as the activities supported by the Project are expected to be of moderate E&S risks that are few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures. The applicable E&S performance requirements for the Project will include IFC Exclusion List, applicable Mongolian E&S laws and regulations, and screening out higher E&S risk activities. Khan Bank will be required to comply with Performance Standard 2 requirements for its own operations. The main E&S risks and impacts of the proposed Project, while moderate in nature as described above, may arise from the eligible subprojects or borrowers of Khan Bank. They may include risks and impacts related to occupational health and safety, labor and working conditions, pollution management, among others. Khan Bank will be required to implement an Environmental and Social Management System (ESMS) to assess and manage such risks at the level of asset class supported by the Project consistent with the above applicable E&S performance requirements.

The Bank has nominated an E&S officer. Under the previous IFC investments, Khan Bank has implemented an ESMS, which include the following key aspects: E&S policy, E&S roles and responsibilities, internal organization and competency development, E&S screening procedures and tools to identify the risks and impacts of client activities, monitoring and review of portfolio, and external communications. For this new Project, Khan Bank will continue to maintain proper capacity and implement the ESMS for activities supported by the Project proceeds to meet the above applicable E&S performance requirements. Khan Bank’s labor management was found to be consistent with the requirements of IFC Performance Standard 2 on Labor and Working Conditions.

Contacts

For Inquiries About the Project, Contact

Khan Bank JSC
Uuganbayar Terbish
Vice President – Wholesale Banking
+976 7515 3333

Khan Bank tower, Chinggis Avenue-6, Stadium Orgil-1, Khan-Uul district, Ulaanbaatar-17010, Mongolia
www.khanbank.com

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Telephone: 202-473-3800
Fax: 202-974-4384

IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

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Title	Anticipated Completion Date
ESMS Training	06/30/2024

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