Khan Bank, The Agricultural Bank of Mongolia

Publication Date: Jan 2005
Published by: USAID - U.S. Agency for International Development
Document Type: Case Study

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How did the Khan Bank become profitable?

This paper assesses the profitability and the role of Khan Bank as the leading provider of financial services to rural Mongolia. It states that Khan Bank is the most profitable of the 16 major Mongolian banks.

The paper provides information on:

• The successful implementation of the USAID and World Bank supported turnaround process of the Khan bank, that:
  • Improved the bank’s financial soundness;
  • Brought financial services to the country’s rural population at better terms and lower costs;
  • Prepared the bank to operate independently and be privatized.
• The effectiveness of the turnaround process in the development of a new lending program, extensive marketing program, new policies and procedures, effective management structure and new training activities. These led to:
• Improved profits;
• New products;
• Demand creation for repeat, larger loans, and for other products and services;
• Cost recovery, sustainability and profitability.

Further, the paper highlights the lessons learnt:

• Insulation from political interference is critical;
• Well trained staff is crucial to the roll out of new products and services;
• Offering the “right” new product is important.

The paper concludes that the successful privatization of the Khan Bank highlights the potential of commercially-oriented microfinance to turnaround state-owned banks into sustainable providers of financial services, while also maintaining rural outreach.