Mongolian Government Passes New Leasing Legislation
In a significant stride towards economic development, Mongolia has officially adopted a new law on financial leasing, effective from January 1, 2007. This legislation, developed with the support of an International Finance Corporation (IFC) technical assistance project, clarifies the types of assets that can be leased and outlines the rights and duties of the parties involved.
The new law is expected to facilitate financing for small and medium enterprises (SMEs), providing them with a new financing method to acquire essential equipment and assets without a significant upfront capital investment. This could improve operational efficiency and competitiveness for these businesses, potentially leading to increased economic activity and job creation.
The IFC technical assistance project, supported by the Japanese government, provides training and consulting services to SMEs, financial intermediaries, and the Mongolian government. Drawing on IFC's extensive experience in leasing development programmes in several countries of the former Soviet Union, the project aims to foster a conducive environment for leasing in Mongolia.
The growth of leasing in Mongolia is evident in the statistics. In 2005, the total value of leasing in the country was US$10.7 million, marking a 40.2% increase over the previous year. Banks in Mongolia reported an 813% increase on their outstanding lease portfolio, while non-bank financial institutions saw a 200% increase in their lease portfolios.
The new leasing law addresses the issue of repossession, providing a framework for the return of leased assets in case of default. This clarity is crucial for the confidence of both lessors and lessees, fostering a healthy leasing market.
While specific data on the impact of Mongolia's financial leasing law on SMEs in terms of access to long-term loans and job creation is not readily available, we can infer potential effects based on general principles of financial leasing and its typical benefits for SMEs.
Financial leasing can serve as a form of long-term financing, which SMEs often find challenging to secure from traditional banking channels. By providing a new financing method, the law could enhance SMEs' growth and job creation capabilities.
Moreover, leasing can help SMEs manage risks associated with technological obsolescence and asset maintenance, as these responsibilities often fall on the lessor. This risk management aspect could be particularly beneficial for SMEs operating in rapidly evolving industries.
In a recent development, Investec has provided a $10 million supply chain finance (SCF) package for agri trader Valency. This move demonstrates the growing interest in Mongolia's financial sector, with investors recognising the potential benefits of the new leasing law for businesses in the country.
As the new leasing law is implemented and businesses begin to take advantage of the opportunities it presents, we can expect to see continued growth in the leasing sector in Mongolia, contributing to the overall economic development of the country.
- The new leasing law in Mongolia, effective from January 1, 2007, might foster growth in emerging markets, particularly for small and medium enterprises (SMEs), as it offers a new financing method for acquiring essential equipment and assets without significant upfront capital investment.
- With the implementation of the leasing law and the growing interest from investors, like Investec with their $10 million SCF package for Valency, financial leasing in Mongolia could increasingly become a significant aspect in the business sector, contributing to the country's overall economic development.
