Theme 2: Institutional innovation in rural finance

This paper attempted to explore the results of Rural Finance Company (RFC) model piloted by “Achid finance” company in Mongolia, to highlight its unique features. It describes the innovative institutional approach to rural finance development such as mobilization of private capital into rural finance and community participation in establishing professional rural finance institution. This is a new and unique rural finance institutional model that is owned by and accountable to the local community including the nomadic herders. The model is a new concept (both in Mongolia and internationally) that attempts to overcome the weaknesses of the cooperative, informal ROSCAs, SHGs and banking models in remote rural areas. The paper describes the comparative advantages of the model and challenges in the piloting stages.

Methods of the research include: literature review of Rural Finance Institutional Models; desk review of model proposal documents and operational and financial reports; field visits to the newly established Rural Finance Companies and meetings with local communities and clients of RFC

RFC brought very positive experience in rural finance development in Mongolia within a short period of time. The piloting of RFC model is going on successfully and the model institutions reached the break-even point within first year of its operation. RFC is small in terms of its size; however, it has all specific features of professional financial institutions. The Rural Finance Company Model is one of the best examples of attracting the private capital into rural finance. The model is replicable in any rural small towns in Mongolia as well as in the other developing countries.

It increases the access to the financial services of rural poor people and it enables the rural business people to invest locally and to put the excess capital into an economic use. The professional management of RFC convinces rural people to invest and get a return on their investment.

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