IFC Invests in Mongolia's First Social Bond to Boost Sustainable Development, Create Jobs

ON 07/10/2024 AT 06 : 45 AM

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

The total amount of the bond is up to $130 million, which includes $30 million to be subscribed by potential co-investors. The three-year social bond will follow the International Capital Market Association (ICMA)'s Social Bond Principles. IFC has advised Khan Bank to develop its Social Bond Framework which is verified through a Second Party Opinion (SPO).

The bond proceeds will be used to fund projects across healthcare, education, food and agriculture, affordable basic infrastructure, and affordable housing, with a focus on micro, small, and medium-sized enterprises (MSMEs) - especially women-owned businesses, which account for most smaller companies in Mongolia - in underserved and rural areas.

MSMEs account for 72 percent of Mongolia's workforce and contribute 17.8 percent of its GDP, but they have limited access to finance. According to the World Bank Enterprise Surveys (2019), 31 percent of surveyed companies in Mongolia face full credit constraints, surpassing the average for other countries in the East Asia and Pacific region. In response, the government of Mongolia is focused on strengthening MSMEs. Given a high unemployment rate and lower labor participation, the goal is to create more jobs, ensure sustainable growth, and diversify the country's economy while reducing its reliance on mining.

Mongolia also launched its Sustainable Development Goal (SDG) Finance Taxonomy in 2023 to catalyze funding for sustainable investments with four additional social financing categories — Information and Communication Technologies, Health, Education and Culture, and Affordable Basic Infrastructure. A recent report estimates that an additional $43 billion in funding is required to meet the SDGs in Mongolia by 2030.[1] This is the first social bond to be issued in the country to support the launch of this SDG Finance Taxonomy.

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

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

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