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.
An economy in transition
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
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
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
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."
Service: A foreign concept
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
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
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.
Committed to change
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."