Micro pension projectXacBank, Mongolia

The Hague, January 26, 2011Joep Schouten & Boudewijn Sterk

Agenda• Origin of project• Objective technical mission• Impression Mongolia• Impression XacBank• Current pension system• XacBank’s motives• Set-up (micro) pensioen systeem• Current state of affairs

Origin project micro pension Mongolia

• Acquisition through mixmarket.org (Sept 2009)• Interest from XacBank (Dec 2009)• Desk research validity (Jan – April 2010)• Meeting with CEO XacBank (May 2010)• Technical mission Mongolia (June 2010)

Objective technical mission

• Getting acquainted with XacBank • Focus on socio-economic conditions• Meeting with 20+ experts:

EBRD, GTZ, ADB, UNDP, WBMinistries, Banks, Insurers, NGOs

Impression Mongolia (1)

Impression Mongolia (2)

Population: 3,04 mil (1,7 persons per square km)Size: 1.565.000 square km (3x the size of France)History: -until 1911 under Chinese reign

» from 1911 to 1990 under Soviet influence» democracy since 1990

Climate: Extreme winter (up to -50 C), short summer (30 C)Economy: GDP per capita 3.200 US$ (2009)

36,1% of population lives under poverty line (2003)Revenue: Mining, agriculture, herding, kasjmirSociety: Individualistic, family oriented, strong distrust

regarding government.

Impression XacBank (1)

•4th bank of Mongolia, market share 4.6% (2008);•Excellent reputation, national and international;•60% of branches in rural areas•Mission: contribute to sustainable development of Mongolia•Innovative projects:

-mobile banking-housing-clean stoves

Impression XacBank (2) - Products

Start-Up

Growth

Development SME

Group loan

Herder

Herder group

Crop

Household

Salary

Overdraft

Housing

Student

Wholesale

Deposit backed

Apartment pledged

Mortgage

Leasing

BUSINESS LOAN

RURAL LOAN

CONSUMPTIONLOAN

OTHER LOAN

Impression XacBank (3) - Partners

Current pension system Mongolia (1)Born before 1960

-Soviet pension, height of premium depends on labor history-pension age woman 50, man 55-financed from 11% social security premium

Born after 1960-Introduced in 1999, ‘deferred drawing rights’-on top of 11% social security comes 7% pension premium-height premium based on balance individual account, divided

by the life expectancy

Current pension system Mongolia (2)

• Not mandatory 2nd pillar pension scheme• 3rd pillar pension scheme not available• Current (increasing) life expectancy: M 63,7 / V 70• No social allowances for informal sector• No provision of funds, pay-as-you-go• Mongolian people sceptical about pension accumulation

government• Huge interest for private pension

Objective XacBank• To be the first to implement a micro pension product

in Mongolia, aimed at rich and poor (micro) clients• Join current savings products (short term)• Cooperation with other banks no problem, as long as lead is with XacBank

Advice (micro) pension provision development

-DC System-Individual accounts -Co-operation necessary (distribution)-Product implementation to short time horizon Mongolian

people-Extern party manages funds; sustainable investment is key-Small difference in premium per income group-Break even: after 6 – 7 years

Current situation:• Project plan submitted (September 2010)• At the request of XacBank market research proposal

(november 2010 submitted) to test economic premises

• Reorganisation XacBank (Januari 2011)• Wait till spring (april 2011)

Continuation micro pension project

Challenges:• How to keep the project going?• How to keep commitment?• How to reach decission making?• How to secure financing the project?