The project sponsor is Khan Bank. The Bank was established in 1991 and was previously owned by cooperatives. The Bank has become one of the leading financial institutions in Mongolia specializing in microfinance and rural finance and had recently embarked on an expansion to increase its share of corporate lending in Mongolia. With assets of $296 million at the end of 2006, it is the 3rd largest bank in the country. It serves 250,000 loan customers with an outstanding loan portfolio of approximately $200 million as at the end of 2006.

Major shareholders of Khan Bank are:

- HS Securities 53.1%
- Tavan Bogd 35.4%
- IFC 9.1%
- Development Alternatives Inc. 2.2%
- Morrow Family Trust 0.3%

The total project cost is $15 million, and proposed IFC investment is a $15 million loan from IFC’s own account.

15.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	15.0
Equity

* These investment figures are indicative

Khan Bank is headquartered in Ulaanbaatar, the capital city of Mongolia. It offers a wide range of financial services, including 14 credit products, 7 deposit products, money transfer, and foreign exchange services through a network of 424 branches.

The project has a strong developmental impact, assisting Khan Bank to build on their established expertise in microfinance and rural finance and to expand exposure to SMEs and corporates. IFC’s proposed loan will enable the Bank to diversify their lending to the US dollar-by providing SMEs and corporates with medium and long term working capital and fixed-assets financing. 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 financial institutions.

IFC will be providing necessary funding through a new loan to support the Bank’s lending operations to its SME and corporate clients. IFC will also play an important role by providing ongoing advice on the business plan and strategy implementation of the Bank.

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

During appraisal, IFC will analyze Khan Bank’s 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 FI and/or Microfinance Exclusion List(s); and/or
- The applicable National Social and Environmental Laws and regulations.

While Khan Bank is an existing IFC client, as this project will follow IFC’s revised Environmental and Social Review Procedure, IFC will also review, if required, the capacity of Khan Bank to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS.

Based on the review, Khan Bank will be required to:

- Develop an, or upgrade, if necessary, any existing SEMS, prior to disbursement to the satisfaction of IFC;
- Identify responsible, qualified persons to manage and implement the SEMS;
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the Applicable Requirements;
- Continue to submit a periodic report to IFC.