microReport #11: Khan Bank, The Agricultural Bank of Mongolia

Today, the Agricultural Bank of Mongolia, now known as Khan Bank, is the leading provider of financial services to rural Mongolia (with the largest rural branch network), one of the largest taxpayers in Mongolia, and the most profitable of the 16 major Mongolian banks, based on return on equity (ROE). But just five years ago, the bank was in receivership and facing possible liquidation after more than a decade of political interference, mismanagement, loan losses, and numerous brushes with insolvency.

Many in the international community felt the Bank could never operate sustainably and should be closed. However, its role in providing crucial financial services to Mongolia’s vast rural areas meant that closing the bank would have had a catastrophic impact on the rural economy and the economy as a whole. Instead, a partnership between the Government of Mongolia (GoM) and the donor community recognized and leveraged the Bank’s latent assets, namely its extensive rural branch network franchise and corresponding access to a large and underserved market.

Khan Bank’s subsequent turnaround and successful privatization highlights the potential of commercially-oriented microfinance to transform even the most troubled state-owned banks into sustainable providers of financial services while also maintaining rural outreach.