The project sponsor is XacBank. XacBank is Mongolia''s first micro-credit company and the first non-bank financial institution (NBFI) licensed and supervised by the Bank of Mongolia. XacBank was registered as a bank in October 2001 after a merger between two NBFIs. It offers a wide range of financial services, including 16 credit products, 7 deposit products, money transfer, and foreign exchange services through a network of 64 branches and extension units.

Today, the bank has become one of the leading financial institutions in Mongolia specialized in microfinance. With assets of $72 million at the end of September 2006, it is the 7th largest bank in the country. It is serving 55,000 loan customers with an outstanding loan portfolio of $43.9 million.

Major shareholders of XacBank are: Mercy Corps (18.46%), MicroVest (17.37%), Triodos (13.88%), Tuushin LLC (13.22%), ShoreCap International (12.23%), and EIT LLC (10.94%).

XacBank became the first commercial bank rated by Moody’s in Mongolia. The ratings for XacBank include Bank Financial Strength rating of D, Ba2 for local currency deposits, B2 for foreign currency deposits, Ba2 for local currency issuer ratings and Ba2 for foreign currency issuer ratings. All ratings have a stable outlook. Also received “A” rating from Planet Rating agency in 2006.

The total project cost is $5 million, and proposed IFC investment is a $5 million loan from IFC’s own account.

5.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	5.0
Equity

* These investment figures are indicative

XacBank is headquartered in Ulaanbaatar, the capital city of Mongolia. It has 64 branches and extension units across Mongolia. The bank makes loans through these branches and extension units.

The project has a strong developmental impact as it will assist XacBank to expand operations in support of productive micro and small businesses, herders and small agricultural enterprises in rural areas across Mongolia nationwide. XacBank is the leader among Mongolian microfinance lenders with an average loan size of about MNT 891,634 ($730 equivalent). IFC’s proposed loan will support and help to sustain the strong growth it has demonstrated in recent years. Its loans, including those classified as consumer loans, are put to productive uses within Mongolia’s extended families thereby supporting livelihoods, employment generation in the private sector, and particularly in low income rural communities. The institution''s strong performance, as demonstrated by its portfolio growth and profitability, its management methodology and control mechanisms and its outreach in rather remote and geographically challenging areas will serve as "best practice" examples for other rural finance institutions, state-owned and slated for privatization or otherwise.

IFC will be providing necessary funding through a new loan to support the bank’s lending operations to its micro and SME business clients. IFC will also play an important role by providing ongoing advice on the business plan and strategy implementation of the bank so as to help it become financially sustainable.

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.

During appraisal, IFC will analyze the FI portfolio, for types of transactions, size, tenor and industry sectors and determine the Applicable Requirements, if any, that would include a combination of:

- The IFC Microfinance Exclusion List; and/or
- The applicable National Social and Environmental Laws and regulations.

IFC will also review the capacity of the FI to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). As an existing IFC client XacBank has implemented an SEMS and provided regular annual environmental performance reports. As the proposed project will apply IFC’s revised social and environmental requirements, IFC will review the existing SEMS and suggest Supplemental Actions, if required, to address any gaps.

Based on the review, the project will be required to:

- Upgrade, if necessary, its existing SEMS, prior to disbursement to the satisfaction of IFC;
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the Applicable Requirements;
- Commit to take action to remedy any gaps in SEMS implementation on an ongoing basis;
- Continue to submit periodic reports to IFC as per a format to be provided by IFC.