Taking Security in Mongolia – Issues and Challenges
In recent years, the Mongolian economy has become heavily dependent on the mining sector. The development of this capital intensive sector and its associated infrastructure requires sponsors to have access to funds. Due to the under-developed capital market with low liquidity, the vast majority of financing comes through conventional debt financing. Financing costs are comparatively high in Mongolia, where interest rates are in the double digits.
In addition, borrowers must provide an adequate level of security to ensure the repayment of funds extended by financial institutions. However, in Mongolia the pool of assets that could provide reliable and enforceable security is limited. This makes financing more difficult and less accessible to small and mid-sized companies. This is due to the shortcomings of the existing regulatory regime, as further discussed below.
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