Mongolia Green Finance Corporation

Mongolia lacks the necessary financial resources to aid its transition to a low-carbon and resource-efficient economy to achieve its NDC targets. The financing necessary to achieve NDC mitigation exceeds 85% of GDP, at USD 11.7 billion.

Despite attempts, both the government and the domestic financial sector are unable to deliver finance at scale to support transition to low-emission technologies. The economy is impacted by commodity market fluctuations and the GoM has been constrained by an Extended Fund Facility of the International Monetary Fund (IMF) with a restricted ability to borrow. The financial sector is burdened by the high cost of capital, and lack of knowledge about green finance and associated opportunities.

The Mongolia Green Finance Corporation (MGFC) is a joint public-private sector effort to create a national financing vehicle (NFV) to overcome the existing challenges and constraints of climate change mitigation within Mongolia. The MGFC aims to mainstream green, affordable and gender-inclusive financing for households and businesses to switch to low-carbon technologies to sustain improvements in policy environment and stakeholder awareness. Such measures aim to induce a paradigm shift to low-carbon tech within low-income households and intensive energy users.

The MGFC features two components: (1) Provision of wholesale financing to participating financial institutions (PFIs) for EE in industry, thermal insulation and green affordable housing; and (2) Equity injection into the MGFC, technical assistance to strengthen MGFC’s green business development function, reinforce the green finance policy environment, build the capacity of PFIs, project developers, households and policy makers, develop a sustainable and bankable green project pipeline and conduct community engagement and awareness raising activities.

Capital availability is one of the largest barriers to meeting Mongolia's climate targets. MGFC would facilitate this whilst encouraging best practice across the industry on mitigation. The MGFC will also catalyse the mainstreaming of domestic green finance, thus further encouraging best practices within EE businesses.

MGFC is governed and supervised by the Board, composed of 5 directors, 3 from representing shareholder groups, and 2 independent directors, The Board of the MGFC adopts various policy documents. It has approved and adopted 17 policy documents, including the Green credit policy, Financial risk management policy, E&S Policy, Compliance Management Policy and Gender policy. MGFC’s Green credit policy is the mandate and authority of MGFC’s Board. The policy and Green Impact Framework are developed based on international and local best practices and used in addition to other governance best practices as identified by Green Investment Group.

The MGFC structure is designed following international best practices tested by the World Bank and IFC (WBG) in establishing development finance companies (DFCs) in more than 50 countries, as well as the standard pathway used to establish National Green Banks, as defined by the Green Bank Network.

The successful rollout of the MGFC could serve as a best practice for other developing countries facing similar challenges and constraints within the context of developing economies.

Wholesale lending to PFIs will be led by MGFC’s Executive team and Board, and guided by MGFC’s policies and procedures that were developed in accordance with GCF and XacBank policies as well as relevant international best practice standards such as the IFC Performance Standards, LMA Green Loan Principles, and governance principles.

The MGFC will also report to the GCF-AE and Board on a quarterly basis, ensuring compliance with national and international best practices.

MGFC proposes three energy efficient products for housing and businesses based on achievements and best practices of energy efficiency projects and studies conducted by various international and local organizations such as the World Bank Clean Air Project, International Institute for Energy Conservation, Energy Regulation Committee, Energy efficiency projects of GGGI and GIZ, and others.

The programme intends to follow the best practices of EE projects and studies conducted by various international and local organizations, including the World Bank’s Clean Air Project, the International Institute for Energy Conservation, the Energy Regulation Committee, the Global Green Growth Institute, and the German Society for International Cooperation.

Overall, the GCF’s independent TAP assesses the efficiency and effectiveness of the programme to be moderate to high. The independent TAP envisions that the programme can be effective and efficient in delivering climate change mitigation results. Although a co-financing ratio at 0.85 is low, GCF’s contribution of USD 27 million will mobilize additional funding of USD 197 million during its 15-year life. Moreover, the programme is projected to be financially sustainable during its lifespan.