What Happens When an MFI Grows Up?

Tamara Sanderson, KF8, Mongolia

Once upon a time, two NGOs named “the Golden Fund for Development” and “Gobi Start” came together to form their own commercial bank with a social mission.  They decided to name themselves “the right bank,” with the hope that Mongolians could repay.  Although all odds were against this new bank, it prospered at a time of economic uncertainty in Mongolia after the collapse of the Socialist system and overarching bankruptcy in the financial sector.  Eight years later, this initiative has resulted in the largest microfinance bank in Mongolia and a role model for other MFIs (microfinance institutions) throughout the world.  

When I first heard this story about XacBank, it seemed a bit like a fairy tale.  Based on analysis from the MicroBanking Bulletin (MBB), it takes about 7 years, on average, for an MFI to become financially sustainable.  Sustainable means that the MFI collects its loans and covers all its costs well enough to serve poor clients even after it does not get grants or soft loans from donors or government. 

 XacBank broke this norm.  It was profitable from the very start.

Although this is great for XacBank, it logically leads to another question.  If it is financially self-sufficient, why does it need Kiva?  Shouldn’t the 0% interest capital go to other MFIs that need it more?

I asked these questions to Jenny, a microfinance partnerships manager at Kiva, and she responded with the following reasons for partnering with XacBank:

  1. Portfolio balance: Kiva likes to work with a diverse set of microfinance organizations to minimize risk
  2. Reputation: XacBank has an incredible reputation in the microfinance space and can use the Kiva funding in innovative ways, rather than just keeping the organization a float
  3. Scale: Larger MFIs allow Kiva to scale its operations faster and typically have the resources to provide better borrower profiles and journals

Now, Jenny’s explanation made sense, but I was wondering if I would see XacBank using the 0% interest capital to directly benefit the borrowers.  As I reflect on my Kiva Fellowship, I can see several unique benefits of the XacBank – Kiva partnership.

  • At the end of the Kiva loan, non-delinquent borrowers will be given back 9% of the interest he or she paid. The repaid interest will be placed in a XacBank savings account, giving the borrower an additional financial tool.  Lenders can see the tangible benefit of their Kiva loan on the borrower
  • XacBank has the resources to publicize Kiva in Mongolia.  I’ve never been on TV in the United States, but in the last two months, I was interviewed on the Mongolian National Radio, gave a speech at a Kiva publicity event, gave a brief on Kiva for the half year report and was featured on the main news station in Mongolia.  Maggie, the XacBank Kiva Coordinator, gets calls every day from people wanting Kiva loans!
  • The stories from the XacBank borrowers illustrate the power of microfinance over time.  I have interviewed dozens of borrowers, and I kept hearing stories like:
    • “I have no relatives, but I think of XacBank and its loan officers as my brothers and sisters.  When I first became a XacBank client, I had an old soldier’s bed and nothing else.  Due to the loans, my personal life has changed drastically.  XacBank saved my life, and I am now on my 11th loan” – Purevsuren Altangerel
    • “XacBank loans have provided my family’s life.” – Dulmaa Samdan
    • Without XacBank loans, I could not run my welding business.  Loans are very important to me.” – Zanased Puntsag
    • “I thank XacBank and Kiva a 1,000 times for helping my son.” – Mother of Bayasgalantogoldor Byambaa
    • “I want Kiva lenders to know I only borrower what I need, not what I can.  I know about the lending on the internet, and I am thankful for their support” – Borya Enhbat
    • “Thank you for helping my brother’s small business.  XacBank is different than the other banks in Mongolia.  They do not require collateral, and the loans officers do research in the field to make sure the loans are given to the right people.  The loan officers are very honest and loyal people.” – Sister of Tumenbayar Nerguy

Last fall, I had the opportunity to volunteer as a management consultant in the Kiva office.  I loved the concept of Kiva and deeply respected the staff, but I kept wondering, “Does this really work?” 

After being at XacBank this summer, I have seen firsthand that microloans can change people’s lives for the better.  Like its role model status in the microfinance industry, XacBank is also paving the way for innovative ways to use the Kiva capital to benefit the borrower.


Kharkhorin Branch Visit

Kharkhorin Branch Visit

Baganuur Loan Officers

Baganuur Loan Officers


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