Case Study

Equity Investments in MFIs and Transformation: The Case of XAC, Mongolia

Lessons from the transformation of XAC, Mongolia
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This paper has been written for MicroStart institutions, which are start-up, young, small institutions with a demonstrated potential for future growth. The paper is divided into 3 parts:

  • Part 1: Provides a brief introduction to the organization, XAC, upon which this case study is based, and its transformation into a non-bank financial institution (NBFI);
  • Part 2: Discusses the preparation of XAC for institutional transformation into a bank, including the increase of its equity base and the process for choosing investors and structuring investment deals;
  • Part 3: Summarizes the status of XAC's efforts at the end of the preparation before transformation.

The paper analyzes the process of transformation of XAC into a bank and details the:

  • Various operational features;
  • Reasons for XAC's transformation into a private sector institution with commercial equity;
  • Its success in transforming into a NBFI;
  • Potential advantages and disadvantages of transformation;
  • Transaction costs, in terms of human resources, financial costs, governance costs and timing;
  • Necessary pre-conditions for transformation, which are to:
    • Develop and communicate a shared vision,
    • Build up essential institutional capabilities,
    • Be accountable,
    • Put together a realistic business plan,
    • Structure an investment plan,
    • Create and support an enabling environment;
  • Process of choosing investors and structuring the deal;
  • Challenges in working with the wider donor community.

The paper concludes by discussing XAC's transformation readiness in 2001.

About this Publication

By Cater, R., Chulun, G.
Published