EBRD boosts Mongolia’s economic resilience through SME finance and EU-funded business advice
The European Bank for Reconstruction and Development (EBRD) is supporting the expansion of Doctor Auto Chain, a car maintenance and spare parts retailer in Mongolia, with business advice and finance. The company, which now employs about 200 people, has now opened three new branches.
This was possible thanks to advice from industry experts, promoted by the EBRD and supported by the European Union, and a US$ 2.7 million loan from local Khan Bank, which was co-financed by the EBRD.
Strengthening resilience by supporting the business climate and private sector growth is one of the EBRD’s key priorities. That is why in Mongolia, the Bank is helping shield the economy from exclusive dependence on natural resources through support of small and medium-sized businesses (SMEs), such as Doctor Auto Chain.
Car ownership is an important factor which can determine economic and social inclusion in Mongolia. In rural areas, it helps to cover great distances in a sparsely populated and extremely vast country. In the rapidly growing cities, it compensates for insufficient public transport.
The automobile sector is therefore growing and presents a great business opportunity. To cover kilometres on unpaved roads in safety or to be jammed in traffic with extreme temperatures outside requires a set of specific checks and car maintenance products.
Doctor Auto Chain, which was established in 1998 as a small workshop producing car seat covers, has responded to growing customer demand by gradually introducing diagnostic and repair services as well as retail of spare parts and car accessories.
The company is also the first and only private enterprise in Mongolia licensed for compulsory state vehicle inspections.
In 2012, Doctor Auto Chain’s CEO, Mr Gantuul, was ready to expand the business and add more branches, including some outside the capital Ulaanbaatar.
With the EBRD’s Advice for Small Businesses, which in Mongolia is funded by the EU, Doctor Auto Chain improved its financial reporting according to international standards and established a proper data collection and analysis system as a basis for strategic planning.
"SMEs constitute a major source of employment and generate significant domestic and export earnings,” said Lars Gronvald, Head of Cooperation of the EU Delegation to Mongolia. “As such, SME development emerges as a key instrument for growth creation and in poverty reduction efforts.”
“With the aim of working towards the diversification of the economy by creating skilled jobs and decent work outside the mining sector, the EU brings support to the Mongolian SMEs.”
The project helped the company secure the loan used to finance the investment in new branches.
To support both local banks such as Khan Bank and their potential mid-market clients with larger and longer-term loans, the EBRD designed the Risk Sharing Facility, which co-finances loans extended by partner banks to local enterprises and shares up to 65 per cent of their risk.
“This is an example of how the EBRD and partner donors, through the Small Business Initiative, combine innovative financial instruments, including indirect finance and business advice, to boost SMEs’ and local financial institutions’ capacity to play their economic role to the full potential,” said Matthieu Le Blan, the EBRD’s head of office in Mongolia.
Doctor Auto Chain has continued to successfully grow. Now it has six branches in Ulaanbaatar, one in Erdenet and, only last week, opened its newest branch in Darkhan, Mongolia’s second largest city.
And the company’s journey isn’t over. Doctor Auto Chain is now exploring the possibility of entering the market in Kazakhstan.
Focusing on the private sector, the EBRD has invested more than €1.3 billion since it started working in Mongolia in 2006 in projects from energy and small business, to industry and financial institutions.