Paula Woessner - Community Development Publications Editor
Published August 1, 2001 | August 2001 issue
For former Community Affairs Analyst Thomas Moore, traveling long distances was all in a day's work. Moore's position as analyst for Indian Country issues called for visits to remote communities throughout the Ninth District. Last year, Moore pursued an economic development opportunity that took him half a world away.
Moore spent five weeks in Mongolia during the summer of 2000 as a consultant to Goviin Ekhlel LLC (Goviin Ekhlel), a nonbank lending institution headquartered in the capital city of Ulaanbaatar. The position was sponsored by Land O' Lakes Cooperative, which provides agricultural and financial consultants to developing nations around the world. For Moore, who had 15 years of commercial and community development lending experience prior to joining the Minneapolis Fed in 1996, the Mongolia position offered a unique opportunity to examine lending practices in a developing country.
Ulaanbaatar, population 630,000, gleams in the distance while a smaller community fills a nearby valley (foreground). Mongolia's largest city is also the nation's political, commercial and communications center. (Photo by Thomas Moore)
Mongolia is a landlocked nation of nearly 2.4 million people, located in northern Asia between China and Russia. Its two neighbors have shaped its modern history. After nearly two centuries of Chinese rule, Mongolia won independence with Soviet backing in 1921. A communist regime was established in 1924 and lasted until the break up of the Soviet Union in the early 1990s. A 1992 constitution established Mongolia as a republic, and in 1996 a democratic political party defeated the former communist party in a national election. In the summer of 2000 and spring of 2001, the former communists won re-election in landslides. Following the victories, party leaders affirmed their commitment to the democratic system.
Recent political changes in Mongolia have been accompanied by widespread economic reform, as the new republic attempts to undo decades of Soviet-style market restrictions. Since 1996 Mongolia has decreased price controls, increased privatization and foreign investment, liberalized trade, and restructured its banking, transportation and energy systems.
In addition to the task of overhauling the old Soviet economic system, Mongolia faces the same challenges that many developing nations face. Per capita income is low, the predominantly agricultural economy is dependent on market fluctuations and weather conditions, and the economic infrastructure is largely undeveloped. There are few paved roads outside Ulaanbaatar and electrical service is spotty in some areas.
Mongolia's economic challenges have attracted the attention of the international development community. In the interest of encouraging the country's shift to free markets and modernization, economic development and aid organizations have initiated programs in Mongolia to spur investment in private enterprise. Goviin Ekhlel is one such venture.
During commercial-lending school, instructors Thomas Moore (third from right) and Art Nelson (far left) break for a photo with Goviin Ekhlel employees.
Goviin Ekhlel was established in Ulaanbaatar in November, 1999, as a wholly owned subsidiary of Mercy Corps International. U.S. Aid for International Development and the U.S. Embassy provided start-up financing. The mission of Goviin Ekhlel, which means "Gobi beginnings" in Mongol, is to enhance lending in the southeastern region of Mongolia, near the Gobi Desert. The institution serves a variety of borrowers, from traders and retail operators to large manufacturers. The Ulaanbaatar headquarters serves as an operations and administration center, and lending takes place at Goviin Ekhlel's branches. At the time of Moore's visit, the institution had two branches far to the south, in the towns of Mandalgovi and Dalanzadgad, and two additional branches were planned for the towns of Altai and Arvayheer.
The young lending institution had just begun closing loans when Moore and his project partner, retired banking executive Art Nelson, arrived in Ulaanbaatar in late July. Moore's assignment involved a review of Goviin Ekhlel's loan-approval process, branch accounting, and budgeting functions. He was also charged with developing a loan-analysis and customer-service training curriculum for the institution's employees. After spending a few days adjusting to his new surroundings, Moore left the modern capital city on a fact-finding trip to Goviin Ekhlel's two branches.
A bumpy, six-hour Jeep ride over unpaved roads introduced Moore to the vast Mongolian plains. The landscape was strangely familiar. "Parts of Mongolia were similar to areas in the Ninth District," Moore says. "The rolling grasslands reminded me of South Dakota." The first leg of Moore's travels brought him to the town of Mandalgovi. With the help of a translator, he interviewed employees and borrowers at the Goviin Ekhlel branch to learn how the institution functioned. Several days later Moore traveled nine hours further south to Dalanzadgad, through an arid region on the edge of the Gobi Desert, and continued his interviews and research.
Both communities offered a glimpse of traditional Mongolian life. Their economies were based on livestock herding, and many townspeople lived in gers—compact, portable homes constructed of wool felt panels spread over wooden frames. During his travels, Moore enjoyed Mongolian hospitality at every stop. "Everywhere we went, people were warm and generous," he notes. "Along the way, strangers opened their homes to us and offered us tea, cookies, and mutton. Plenty of mutton."
Evening sunlight fades in Ulaanbaatar, where an absence of zoning laws encourages mixed development. In this view, commercial, industrial and residential buildings mingle in the foreground and Soviet-era apartment blocks dominate the skyline. (Photo by Thomas Moore)
At the branches, Moore discovered that the warmth and hospitality he encountered on the road was not an integral part of the business climate in Mongolia.
"They're struggling with the change from the old, Soviet-dominated system, and there's not a heavy emphasis on customer service yet," he says. At one branch, customers were not greeted when they arrived because the reception desk was positioned away from the front door. The customer-service training curriculum that Moore later developed emphasized the importance of creating a welcoming atmosphere for borrowers.
According to Moore's findings, the greatest challenge for Goviin Ekhlel was a lack of financial experience on the part of lenders and borrowers. Instead of processing more than one application at a time, lenders were examining them sequentially, which caused delays. Redundancies in the approval process caused lenders to request the same information several times, which frustrated borrowers.
For their part, borrowers often submitted late or incomplete application materials and exhibited a lack of knowledge about their companies' financial statements. There was room for improvement in the accounting and budgeting functions as well. At one branch, the manager spent an inordinate amount of time handling day-to-day expense transactions, and supply costs were high because all materials were shipped from Ulaanbaatar.
To improve operations at Goviin Ekhlel, Moore recommended ongoing, comprehensive loan-analysis training to provide a comfort level for inexperienced lenders. He recommended technical assistance for Goviin Ekhlel's borrowers, to help them complete loan applications properly and provide financial statements on a monthly basis after loans are made.
Additional recommendations included separating the duties related to expense tracking, seeking local vendors for supplies and monitoring supply expenses consistently across branches, and instituting an internal audit program to monitor the accounting function. After visiting the two branches, Moore returned to Ulaanbaatar to concentrate on developing the customer-service curriculum, training employees, and compiling a report of his findings.
A sausage-making factory in Mandalgovi, 150 miles south of Ulaanbaatar,typifies manufacturing facilities outside the capital. (Photo by Thomas Moore)
Moore's favorite experience in Mongolia was gaining an overall understanding of the country's financial services industry. "A whole new environment is being created as Mongolia shifts from a Soviet-dominated economy to a Western, free-market system," he says. "It's a complicated situation, and it was a privilege to see the changes up close and contribute to the process."
The challenges Mongolia faces are daunting, but Moore's experience with Goviin Ekhlel's lenders and borrowers left him optimistic for the future of the lending institution and the nation as a whole. "The people I met were hard-working, resilient, and highly motivated," he says. A lack of experience and expertise has created obstacles, but over time and with proper training, individuals at Goviin Ekhlel and similar institutions can make substantial contributions to the developing free-market economy in Mongolia, according to Moore. "They're committed to making these changes work," he says. " And they're more than capable of doing it."