IFC Invests $100M in Mongolia’s Social Bond to Bolster Sustainable Finance and Job Creation

MSMEs account for 72 percent of Mongolia's workforce and contribute 17.8 percent of its GDP, yet they face significant access to finance issues.

To bolster Mongolia's sustainable-finance market and create jobs while increasing resilience, the International Finance Corporation (IFC) is investing up to $100 million in the country's first-ever social bond, issued by Khan Bank, Mongolia's largest commercial bank.

The total amount of the bond is up to $130 million, including $30 million to be subscribed by potential co-investors. The three-year social bond will adhere to the International Capital Market Association (ICMA)'s Social Bond Principles. IFC has advised Khan Bank in developing its Social Bond Framework, which has been verified through a Second Party Opinion (SPO). The bond proceeds will fund projects across healthcare, education, food and agriculture, affordable basic infrastructure, and affordable housing. A particular focus will be on micro, small, and medium-sized enterprises (MSMEs), especially women-owned businesses in underserved and rural areas.

MSMEs account for 72 percent of Mongolia's workforce and contribute 17.8 percent of its GDP, yet they face significant access to finance issues. According to the World Bank Enterprise Surveys (2019), 31 percent of surveyed companies in Mongolia face full credit constraints, surpassing the average for other East Asia and Pacific countries. The Mongolian government aims to strengthen MSMEs to create jobs, ensure sustainable growth, and diversify the economy, reducing reliance on mining.

In 2023, Mongolia launched its Sustainable Development Goal (SDG) Finance Taxonomy to catalyze funding for sustainable investments, with additional social financing categories in ICT, health, education and culture, and affordable basic infrastructure. A recent report estimates that Mongolia requires an additional $43 billion in funding to meet the SDGs by 2030. This social bond issuance supports the launch of the SDG Finance Taxonomy.

"This landmark issuance will help us support our clients' projects and activities that have significant positive social impacts and benefits, and expand financial access to target segments of the country," said Munkhtuya Rentsenbat, CEO of Khan Bank. "As the largest bank in the country, Khan Bank is leading by example to create a positive impact by enabling financial inclusion, economic empowerment, and promoting environmental sustainability."

IFC invested in Mongolia's first green bond, also issued by Khan Bank, in 2023 and launched an advisory collaboration to expand climate finance this year. Previously, IFC arranged a $130 million syndicated loan for Khan Bank to support MSMEs.

"As one of the pioneering issuers of social bonds and a leader in developing guidelines for such instruments, IFC is well-positioned to support first-time issuers like Khan Bank," said Rufat Alimardanov, IFC's Resident Representative for Mongolia. "Through this investment, IFC will enable a leading market player to attract funding for eligible social projects while establishing social bonds as a new long-term asset class in Mongolia."

Over the past decade, IFC has been a strong supporter of Mongolia's sustainable finance development, helping the country adopt environmental and social risk management requirements for commercial banks. With Japan's support, IFC also helped formulate Mongolia's Green Bond Regulation and Guideline documents, enabling green bond issuance in the local market.

Since launching its Social Bond Program in 2017, IFC has issued over $8 billion through 92 social bonds in 14 currencies.