Module 8 - Mongolia: Technological Innovation Serving Rural Areas (Khan Bank of Mongolia)

Benefits and Impacts

The main economic benefits—the lower cost of capital, profitability, and increased geographic reach—have been achieved by providing a cost-effective and efficient branch network along with innovative technology, which are the keys to delivering financial services to this remote part of the world.

The impact of branch connectivity and wireless internet-based banking system has proved that:

• An innovative bank delivery system can provide better financial products and services to people in remote areas by allowing access to formal banking via the internet and a seamless wireless banking system.
  
  
• With this technological innovation, Khan Bank has provided products and services that are ideally suited to mobile traders and small businesses.
  
  
• A wireless rural phone network can be useful and affordable, offering sustainable applications such as emergency communications, distance learning, telemedicine (human and husbandry), tourism communication, and early warning for drought and fire hazards, which add value to financial products and services.

Lessons Learned and Issues for Wider Applicability

Heavy investment in proprietary electronic innovation and a well-established, connected branch network are essential in delivering a critical mass of innovative financial products and services in remote areas. The advantage of the network and seamless connectivity are that savings are posted in real time; loans are analyzed, approved, and disbursed in one to two days; and loan repayments are made electronically to avoid or minimize defaults.

The commitment of Khan Bank’s management and investors to invest in innovative technology to increase outreach and provide people in remote areas with access to financial services is seen as a key factor in the success of the project.

It appears that Khan Bank’s business model could be replicated. The applicability of this project to other countries and settings will depend, however, on the cost effectiveness in a given setting, which in turn depends on, for instance, the availability of good managers, openness of the government, cultural and social compatibility, and an enabling legal environment.