Mongolia’s Financial Regulation Efforts Fall Short: Evaluation Finds

A recent evaluation of the Financial Regulation and Governance Program in Mongolia has concluded that the country’s efforts to develop its financial sector have been less than successful. The program aimed to establish a broad-based financial sector with alternative channels of financial intermediation, but fell short of achieving this goal.

Background

Mongolia’s transition from a centrally planned to a market-based economy began in 1991, when it shifted from a monobanking system to a two-tiered banking system. However, the country has faced numerous financial crises over the years, including in 1994, 1996, and 1999, as well as during the global financial crisis of 2008.

Evaluation Findings

The evaluation, conducted by the Asian Development Bank (ADB), found that despite significant support from international organizations like the IMF, Mongolia’s financial sector has struggled to recover. The country’s fragile banking system, characterized by illiquid and insolvent banks, hindered efforts to reform the sector.

Key Challenges

• Poor governance
• Inadequate capacity building
• Insufficient support for small and medium-sized enterprises (SMEs)
• Lack of resources
• Weak regulation and supervision of financial institutions
• Limited public awareness of financial services

Program Performance

The Financial Regulation and Governance Program was launched in 1996 as part of a comprehensive financial sector reform initiative. While the program did achieve some successes, including the establishment of a new banking law and regulatory framework, it ultimately failed to meet its goals due to inadequate implementation and lack of resources.

Lessons Learned

• The importance of strengthening governance and regulatory frameworks
• The need for continued support from international organizations like the ADB
• The importance of improving regulation and supervision of financial institutions
• The need for greater public awareness of financial services

Implications and Recommendations

The findings of this evaluation have important implications for Mongolia’s ongoing efforts to develop its financial sector. They underscore the need for continued reform and support from international organizations like the ADB, as well as the importance of strengthening governance and regulatory frameworks to promote a stable and inclusive financial system.

Next Steps

• Implement measures to strengthen governance and regulatory frameworks
• Provide targeted support to SMEs and other vulnerable sectors
• Improve regulation and supervision of financial institutions
• Enhance public awareness of financial services
• Continue to receive support from international organizations like the ADB