Mongolia Leasing Industry Survey 2008

Government of Japan
MONGOLIA LEASING INDUSTRY SURVEY
Ulaanbaatar - 2008
IFC MONGOLIA LEASING DEVELOPMENT PROJECT

Mongolia Leasing Industry Survey, 2008. Annex 1: Main Indicators of Mongolian Leasing Industry
This publication may not be copied partly or in full without prior written permission of
copyright owner. This publication has been prepared for guidance only and is not
intended to be exclusive. Despite the fact that this publication has been compiled with the
highest care it should be used neither as a substitute for legal advice nor as a basis for
adoption of business decisions.
Views expressed in this publication are those of its authors and do not necessarily reflect
the views of IFC, IBRD, or the Government of the country supporting the implementation
of the IFC Mongolia Leasing Development Project.
© 2008 International Finance Corporation

Pennsylvania Avenue NW, 2121
United States of America
Member of the World Bank Group
Mongolia Leasing Industry Survey, 2008
ACKNOWLEDGEMENTS
IFC would like to thank the leasing providers who participated in the survey. We believe
that the survey will be useful to all market players, policy makers, investors, financial
institution, and will help leasing providers compare themselves with others, while also
identifying opportunities for growth.
IFC would like to thank Solo Center Co. Ltd (Mongolia) and Ms. Hongorzul Dari, PhD, a
former Mongolia Leasing Development Project Financial Specialist, for their
participation in this project: IFC engaged Solo Center Co. Ltd to distribute the survey
questionnaires and collect responses, and Ms Hongorzul Dari to analyze data and draft
this report.
IFC would also like to thank the government of Japan, who financed this study.
3
TABLE OF CONTENTS
EXECUTIVE SUMMARY .............................................................................................. 6
SECTION ONE: MACROECONOMIC SITUATION................................................. 8

1.1 General Overview ......................................................................................................... 8
1.2 Financial Sector ............................................................................................................ 8
SECTION TWO: LEASING INDUSTRY OVERVIEW............................................ 10

2.1 Leasing Industry.......................................................................................................... 10
2.2 Providers of Leasing ................................................................................................... 14
2.2.1 Banks............................................................................................................ 14
2.2.2 Suppliers of Equipment and Machinery....................................................... 16
2.2.3 Independent Leasing Companies and NBFIs............................................... 17
2.2.4 Other Lease Providers ................................................................................. 19
2.3 Sources of Financing................................................................................................... 20
2.4 Overdue Payments ...................................................................................................... 20
2.5 Main Barriers to Leasing Development ...................................................................... 21
2.6 Conclusion .................................................................................................................. 21
SECTION THREE: LEGAL FRAMEWORK FOR LEASING ................................ 22

3.1 General Overview ....................................................................................................... 22
3.1.1 Legal Environment Awareness .................................................................... 23
3.1.2 Dealing with courts...................................................................................... 24
3.2 Accounting and Taxation of Financial Leasing .......................................................... 24
3.3 Constraints for Further Development ......................................................................... 25
3.4 Conclusion .................................................................................................................. 26
Annex 1. Main Indicators of Mongolian Leasing Industry, 2003-2007,

by category of lease providers .......................................................................................... 28
Annex 2. Survey Methodology......................................................................................... 29
Annex 3. Survey Questionnaire........................................................................................ 30
4
LIST OF TABLES
Table 1.1. Main Ratios of Mongolian Financial Sector, %, 2000 - 2006 ........................... 9
Table 1.2. Lease Providers by Categories, 2003-2007 ..................................................... 11
Table 1.3. Key Ratios for the Mongolian Leasing Industry, 2003 - 2007 ........................ 13
Table 2.1. Average Lease Conditions by Banks, 2003-2007............................................ 15
Table 2.2. Average Lease Conditions by Equipment Suppliers, 2003-2007 .................... 17
Table 2.3. Average Lease Conditions by Leasing Companies and NBFIs, 2007............. 19
Table 2.4. Average Lease Conditions by Other Lease Providers, 2006-2007 .................. 19
Table 2.5. Sources of Financing, 2004-2007 .................................................................... 20
LIST OF CHARTS
Chart 1. GDP growth, % .............................................................................................. 8

Chart 2. Number of Lease Providers, 2003 – 2007...................................................... 11
Chart 3. Outstanding Lease Portfolio by Lease Providers 2007.................................. 12
Chart 4. Total Lease Portfolio 2007, by sector ............................................................ 13
Chart 5. Total Lease Portfolio 2007, by type of lessors............................................... 14
Chart 6. Total Lease Portfolio of Banks 2007 ............................................................. 15
Chart 7. Total Lease Portfolio of Equipment Suppliers 2007...................................... 16
Chart 8. Total Lease Portfolio of Independent Leasing Companies 2007 ................... 18
Chart 9. Total Lease Portfolio of NBFI 2007 .............................................................. 18
Chart 9. Leases > 90 Days Overdue 2003 - 2007 ........................................................ 20
Chart 10. Key Barriers to Leasing Development 2008................................................ 21
5
EXECUTIVE SUMMARY
The Mongolian leasing industry has shown signs of positive growth over the past two
years. Macroeconomic stability and growth, coupled with important legislative initiatives,
have encouraged foreign and domestic investment in the sector. The IFC Mongolia
Leasing Development Project, with support by the Japanese government and IFC trust
funds, played a key role in spurring this growth by lobbying for important legislative
changes, including the Law on Financial Leasing (passed in June 2006), conducting
training and consultations for leasing companies, and raising awareness about leasing in
general. Since the project closed in September 2006, however, no comprehensive market
survey has been conducted to measure this growth. IFC, therefore, endeavored to measure
exactly how much the leasing industry has grown as a result of the legislative reform and
project activities.
The survey was conducted in April 2008. Respondents were asked to give financial
activity data as of December 31, 2007. Forty-eight lessors were included in the survey
sample, representing 100 percent of the leasing services providers in Mongolia. Various
methods of collecting information were used in the preparation of this analysis, including
polling leasing companies in person, as well as interviews with government officials and
other market participants.
The survey shows significant positive development of the leasing industry in

Mongolia.
• The total volume in new leases reached almost $90 million in 2007, more than double
the volume in 2006, and over eight times the leasing volume in 2005.
• The leasing industry has been growing rapidly, reaching a total volume in the
outstanding leasing portfolio of over $80 million in 2007, almost three times the
leasing portfolio in 2006 and a seven-fold increase over the leasing portfolio in 2005.
• The number of lease providers almost quadrupled -- from 13 in 2005 to 48 in
2007 – reflecting the positive changes in the legal environment for leasing industry in
Mongolia.
• The main lessors are banks and equipments suppliers, constituting the bulk of the
portfolio.
• The market is diversified, though cars, consumer items, and mining equipment still
make up a large percentage of the portfolio.
• The share of leasing as a percentage of Gross Domestic Product (1.6 percent in
2007) and in the total loans provided by the banks (3 percent in 2007) has been
increasing over the last years, showing that leasing is becoming one of the
important sources of financing.
• The repayment rate was high for all lease providers, well over 90 percent.
• The sector has stabilized to some degree as indicated by the more favorable terms
offered – longer term durations and lower interest rates.
6
However, there is still room for further improvement in legislation like resolving
contradictions between various legal acts, providing more favorable conditions in
taxation, and clarifying vague provisions. In addition, current funding sources are
extremely limited, with only 15% of lease financing coming from external creditors.
Growth prospects, then, continue to be hampered by the enabling environment and the
lack of alternative sources of financing.
7
SECTION ONE: MACROECONOMIC SITUATION
1.1 General Overview
Mongolia has made significant progress in achieving macroeconomic stability and

implementing fundamental structural reforms since its transition to democracy and a
market-based system in the early 90s.
The Mongolian economy has been growing steadily in the last years from 5.6 percent
GDP growth in 2003 to 9.9 percent in 2007, with a peak of 10.7 percent in 2004. This
growth can be attributed to sustained favorable weather conditions, livestock increases,
higher prices of gold and copper in the world market, expansion in transportation and
telecommunications, and greater capital inflows.
Chart 1
GDP growth, %
12 10.7 9.9 10.1
8.5
7.3
8
% 5.6
0
2003 2004 2005 2006 2007 2008*
2008* - estimated growth
Source: National Statistics Office, Statistical Yearbook, 2007
In 2007, over 4,000 foreign companies from 80 countries were registered in Mongolia.
Total Foreign Direct Investments (FDI) reached about $2.15 billion, with accounting oil
and mining sectors almost half of it (49.4 percent), trade and catering 17.7 percent,
banking and financial services 14.9 percent, light industry 8.2 percent, construction and
construction material production 6.5 percent and other sectors 3.3 percent. China and
Canada were the largest investors providing about 40 percent and 13 percent of the total
FDI respectively.
1.2 Financial Sector

The Mongolian financial sector has continuously improved over recent years, owing to
the strengthening and sharp growth of the economy, increase in the price of main export
products on the world market and an increase in the profits of business companies. In
2006, financial intermediation has deepened and concerted efforts have been made to
achieve economic growth, due the improving situation, mentioned above, and to the
intensification of deposit and credit activity among banks.
8
The deposits of households, companies and other institutions have steadily increased in
2006. In particular, the total amount of savings and time deposits increased by
48.2 percent, or $275.2 million, reaching $812.4 million. This is an indication of the
restoration of public confidence in the banking system.
The increase of 42.4 percent or $74.5 million in the capital of banks was a result of the
following factors: first, banks increased their capital to $6.8 million in compliance with
the minimum statutory capital requirement; second, the profit of the banking system
reached $25.5 million for the first time in the banking sector’s history.
The increase in equity has resulted in an increase in a total amount of banking sector
assets of 46 percent, or $620.4 million. Consequently, the total assets of the banking
sector reached 2.3 trillion dollars.
As the assets of the banking sector have risen, loans and finance to the private sector have
increased steadily. For example, banks granted $54.5 million in loans to less than
1,700 customers in 2000. By 2006, total outstanding loans reached $1.2 billion and
43.7 percent of the banks had foreign investors.
As a result, in 2006 financial sector indicators were expanded and the deepening of
financial intermediation was continued. The ratio of loans to GDP increased by
4.5 percent, the ratio of deposits to GDP by 3.9 percent and money velocity increased by
0.13 percent from the previous year demonstrating the effect of stabilization.
Table 1.1. Main Ratios of Mongolian Financial Sector, %, 2000 - 2006

2000 2001 2002 2003 2004 2005 2006
Loans/GDP 6.6 12.1 18.7 29.9 31.2 34.1 38.6
Deposits/GDP 9.1 12.1 17.6 24.6 26.6 27.5 31.4
Loans outstanding (billion tugrugs) 66.8 135.1 231.4 442.1 606.8 859.9 1223.3
Source: Bank of Mongolia, Annual report 2006
In 2007 the financial sector in Mongolia comprised of 16 commercial banks, 150 non-
bank financial institutions (NBFIs), and about 500 savings and credit cooperatives.
9
SECTION TWO: LEASING INDUSTRY OVERVIEW
2.1 Leasing Industry
Leasing in Mongolia started to develop actively in 2006. There were a number of actions
undertaken by the Mongolian government and the donor community to support this
development.
Since the mid 1990s awareness has been growing in Mongolia that the introduction of
financial leasing would be advantageous for the country’s economic development and
that there is demand for a term financing instrument that is asset based and does not rely
on collateral exclusively. There was a strong demand for financial leasing, demonstrated
by the fact that, despite the lack of favorable environment for leasing and proper
legislation, many financial institutions and even vendors and producers of equipment
were offering lease products (or asset-based financing).
In order to meet this demand, the Mongolian government, with IFC assistance,
implemented a series of initiatives to introduce leasing: in 1997 the first survey on leasing
was conducted; in 1998 several ministries and private sector representatives drafted the
first leasing law and tried to get it adopted by the Parliament. However, elections
resulting in a new government halted the progress. In 1999 IFC helped to establish the
Mongolian Leasing Association; and in 2001 IFC funded a technical assistance mission
to review the conditions of the leasing market, analyze legal, tax, accounting, and
regulatory aspects of leasing in Mongolia and updated the draft leasing law.
In July 2004 the IFC Mongolia Leasing Development Project commenced to continue
previous IFC’s initiatives, reinvigorate discussions on new leasing legislation, and
complete this process by helping the leasing legislation get passed in summer 2006. The
new law on financial leasing and the amendments to the tax and bank legislation were
expected to have significant impact on the development of the leasing industry.
With adoption of the new Law on Financial Leasing on June 22, 2006, leasing became
much more attractive for investors, both foreign and domestic. The law gives a definition
of financial leasing that discriminates clearly between financial leasing and renting,
property leasing and other types of contracts mentioned in the Civil Code. Mongolia also
amended its tax legislation -- the Corporate Income Tax Law and the Value Added Tax
Law, approved in June 29, 2006, and enacted in January 1, 2007 -- to create favorable tax
treatment for leasing and encourage investment in fixed assets.
As of December 2007, there are 48 lessors operating in Mongolia, as identified during the
survey. Of these, 11 are the largest Mongolian banks, two are independent leasing
companies formed by banks, eight are non-bank financial institutions, 15 are suppliers of
equipment and transport vehicles, and 12 are manufacturers and suppliers of other types
of products. As compared to 2005, the number of lessors doubled in 2006, and further
increased in 2007.
10
Chart 2
Number of Lease Providers, 2003 - 2007
60
48
40
27
20
11 13
3
0
2003 2004 2005 2006 2007
Table 1.2. Lease Providers by Categories, 2003-2007

2003 2004 2005 2006 2007
Banks 1 4 7 9 11
Independent leasing companies 1 1 1 2
Non-bank financial institutions 1 1 2 8
Suppliers of equipment and machinery 2 5 4 8 15
Other types of lease providers (manufacturers,
7 12
suppliers of product other than equipment)
Total 3 11 13 27 48
The leasing industry has been growing rapidly, reaching a total volume in the outstanding
leasing portfolio of over $80 million in 2007, almost three times the leasing portfolio in
2006 and a seven-fold increase over the leasing portfolio in 2005. The main lessors are
banks and equipments suppliers, constituting the bulk of the entire portfolio. (See
Annex 1).
The total volume in new leases reached almost $90 million in 2007, more than double the
volume in 2006, and over eight times the leasing volume in 2005.
11
Chart 3
Outstanding Lease Portfolio by Lease Providers 2007

($ millions)
100.0
80.2
2003 2004 2005 2006 2007
80.0
56.8
Lease Volume
60.0
40.0
28.0
20.4
19.5
20.0
11.0
7.3
6.2
6.4
4.9
4.5
1.9
1.7
1.9
1.3
1.1
0.7
0.3
0.5
0.1
0.0
0.2
0.1
0.0
Banks Suppliers of Leasing NBFI's Other Total
equipment companies
The leasing portfolio in Mongolia by sector is quite diversified and includes cars
(41.4 percent), consumer items (23.8 percent), mining (23.6 percent); with equipment for
trade1 (4.6 percent), construction equipment (1.5 percent), agricultural equipment
(0.9 percent), freight vehicles (0.9 percent), medical equipment (0.3 percent), and others
(3.0 percent) making up smaller parts of the portfolio. Due to the high demand for cars
and relatively well developed insurance and registration system for cars, this segment
accounts for the largest percentage of the lease portfolio, followed by consumer items. As
all lessors have a limited budget and face issues with funding, most of them except
equipment suppliers offer financial leasing for consumer items with value of less than
$1,000. Thus it is clear that financing equipment for small and medium enterprises still
face problems accessing leasing regardless of the sector.
In 2003 the share of leasing was only a tiny portion (1.1 percent) of machinery and
equipment import; leasing now comprises over one-fifth of machinery and equipment
imports (10.3 percent in 2006 and 22.8 percent in 2007) demonstrating a significant
growth.
1
Equipment for trade includes refrigerators, shelves, electronic weights, etc.
12
Chart 4
Total Lease Portfolio 2007
by sector
Other
3.0%
Mining equipment
23.6%
Equipment for trade
4.6%
Cars
41.4% Medical equipment
0.3%
Construction
equipment
1.5%
Consumer items
Freight vehicles 23.8%
0.9%
Agricultural equipment
0.9%
The share of leasing as a percentage of Gross Domestic Product (GDP) and in the total
loans provided by the banks has been increasing over the last years, showing that leasing
is becoming one of the important sources of financing. The percentage of leasing in GDP
increased from 0.1 percent in 2003 to 1.6 percent in 2007, reflecting the positive impact
of the new legislation. Mongolia compares favorably with countries with well-established
leasing industries, where leasing typically comprises 1-2 percent of GDP, and with its
neighbors Russia and China, where leasing comprised 1.17 percent and 0.2 percent
respectfully in 20062.
Table 1.3. Key Ratios for the Mongolian Leasing Industry, 2003 - 2007
2003 2004 2005 2006 2007
Number of outstanding lease deals 366 6,039 17,851 38,018 82,764
Value of outstanding lease portfolio ($ millions) 1.93 6.35 10.96 28.0 80.21
Leasing/Loan (%) 0.5 1.2 1.5 2.7 3.0
Leasing/GDP (%) 0.1 0.4 0.5 1.0 1.6
Leasing/Import of machinery (%) 1.1 3.2 4.3 10.3 22.8
Sources: Rows 1 - 2: IFC Leasing market surveys, 2004-2008;
Rows 3 - 4: Bank of Mongolia, Annual report 2006;
Row 5: National Statistics Office, Statistical Yearbook, 2007.
2
World Leasing Yearbook 2008, Euromoney Yearbooks.
13
Chart 5
Total Lease Portfolio 2007

by type of lessors (as % of total volume)
Banks Suppliers of
70.8% equipment and
machinery
25.4%
Other types of
Leasing
lease providers
NBFIs companies
2.2%
0.2% 1.4%
According to the survey, 70.8 percent of the total outstanding lease portfolio for both
consumer items and business equipment was financed by banks in 2007 followed by
suppliers of equipment (25.4 percent), and other types of lease providers such as
manufacturers and suppliers of products other than equipment (2.2 percent). The other
types of lease providers are mostly new players in the leasing market that started leasing
activity after the legal environment changed. The structure of the total lease portfolio by
the type of lessors has changed since 2005 when the share of equipment suppliers
(56.9 percent) prevailed over the banks (40.2 percent) in value terms. However, in terms
of the number of leasing transactions, banks have been financing 98-99 percent during
the last five years. The value of these transactions tends to be lower than the expensive
equipment leased by the suppliers.
2.2 Providers of Leasing
2.2.1 Banks
The survey showed that 11 out of 16 Mongolian banks offer financial leasing services in
comparison with only seven banks in 2005. Most of the banks have changed the product
name to “financial leasing”, which was called “a leasing loan” before the new legislation
was enacted.
All 11 banks have made their leasing conditions more favorable to their clients by
increasing lease terms, reducing interest rates, and attempting to support small businesses
rather than consumer items. However, over 85 percent of leases offered by banks still
derive from consumer items and private cars, which indicates that the structure of bank
leasing by type of equipment remains unchanged.
14
Chart 6
Total Lease Portfolio of Banks 2007
by equipment type
Manufacturing
equipment
Mining equipment 0.5%
0.9% Equipment for trade
Other 5.8%
5.0% Construction
equipment
0.4%
Consumer items
34.8%
Cars
51.4%
Telecommunication
0.2%
Freight vehicles
1.1%
Table 2.1. Average Lease Conditions by Banks, 2003-2007

2003 2004 2005 2006 2007
Number of banks engaged in leasing 1 4 7 9 11
Average duration of lease agreements (months) 6 6 9 14 18
Down payment, % 20-30% 20-30% 10-50% 0-50% 0-50%
Interest rate, % 2.3-3.0% 2.3-3.0% 2.3-3.0% 2.1-2.5% 1.3-2.0%
Average number of leasing deals 28 536 1604 3396 7364
Main currency of lease transactions MNT MNT MNT MNT MNT
The average period of leases increased from six months in 2003 to 18 months in 2007,
indicating that the leasing market has become more stable and that lessors are able to take
more risks. Likewise, interest rates declined from 2.3-3.0 percent in 2003 to 1.3-2.0
percent in 2007, indicating stability in the market and allowing leases to become more
affordable for lessees. Over 90 percent of the leasing deals with banks were in the local
currency, Mongolian tugrugs (MNT).
15
2.2.2 Suppliers of Equipment and Machinery
The number of equipment and machinery suppliers providing leasing services has grown
from four in 2005 to 15 in 2007. Their lease portfolio consists mainly of mining
equipment (88.5 percent) followed by cars (5.1 percent), construction (4.6 percent)
equipment, and agricultural equipment (1.8 percent).
Chart 7
Total Lease Portfolio of Equipment Suppliers 2007

by equipment type
Mining
equipment
88.5%
Agricultural
equipment
1.8%
Cars
5.1%
Construction
equipment
4.6%
In 2007 the total value of 471 new lease transactions financed by the suppliers was
$15.9 million with the current outstanding portfolio of $20.4 million (438 lease deals).
This represents a more than seven-fold increase in the total value of new lease
transactions and almost three-fold increase in the outstanding portfolio in comparison to
2006.
Equipment and machinery suppliers offer longer lease period and lower interest rates than
other leasing providers. Equipment and machinery suppliers are mostly foreign
companies or branch companies of internationally recognized companies. In comparison
to other leasing providers they are able to get low interest and long term loans from
overseas, mostly from parent companies in order to finance leasing. The average number
of leasing deals per supplier has increased from four in 2003 to 29 in 2007. The average
size leasing deal concluded by suppliers was around $136,050 in 2007, demonstrating an
almost four-fold increase in comparison with 2005. Unlike with banks, almost all deals
are accounted for in U.S. dollars.
16
Table 2.2. Average Lease Conditions by Equipment Suppliers, 2003-2007

2003 2004 2005 2006 2007
Number of Suppliers engaged in leasing 2 5 4 8 15
Duration of lease agreements (months) 24-36 24-36 24-36 12-24 12-24
Average down payment, % 30% 30% 30% 30% 30%
Interest rate, % 1.3-1.5 1.3-1.5 1.3-1.5 1-1.2 1-1.2
Average number of leasing deals 4 7 9 13 29
Main currency of lease transactions USD USD USD USD USD
Equipment suppliers benefit the most from the current legislative framework. They enjoy
the VAT exemption for the interest portion of a lease payment. Their customers/lessees
also benefit from reduction of taxable income by the amount of interest paid to them.
Bank customers do not benefit from this provision as 86.1 percent of bank customers take
leases for personal use and not for business purposes. According to the General
Department of National Taxation, as of October 1, 2007, a total of 429 taxpayers
deducted $2.6 million from their taxable income in accordance with this provision.
The most problematic issue for suppliers as well as other types of lease providers is the
registration of movable assets. Although the law on financial leasing states that movable
assets can be registered, there is no regulation or regulatory agency that registers these
assets. Creating such a registry would ensure that leasing companies have established
priority over the leased asset in the event of the lessee’s bankruptcy. A proper asset
registry system also ensures that assets offered as collateral by the lessee do not already
have a lien against them.
2.2.3 Independent Leasing Companies and NBFIs
There are two leasing companies specializing in financial leasing in Mongolia. Mongol
Leasing was the first leasing company in Mongolia, established in 2002, has extensive
experience in leasing and is an active player in the leasing market. Xac Leasing was
established in May 2007 with the purpose to provide financial leasing to small and
medium enterprises. Mongol Leasing is owned by the same business group that owns
Golomt Bank, which was established by Xac Bank. Mongol Leasing is licensed as a non-
bank financial institution and operates as an NBFI by fulfilling all requirements of the
Bank of Mongolia, while Xac Leasing is established as a limited liability company.
Types of equipment offered by the leasing companies for leasing are limited mostly to
telecommunication (41.6 percent), construction (24.2 percent), agricultural
(20.1 percent), and office equipment (14.1 percent).
17
Chart 8
Total Lease Portfolio of Independent Leasing
Companies 2007
by sector
Telecom
Agricultural equipment
equipment 41.6%
20.1%
Office Construction
equipment equipment
14.1% 24.2%
A total of 8 NBFIs (excluding Mongol Leasing) engaged in leasing were identified during
the survey.
The lease portfolio of NBFIs consists of a wide range of equipment, out of which
agricultural equipment and cars account for 38.6 percent and 26.0 percent respectively in
2007. The other types of leased equipment are: consumer items (21.3 percent) and
construction (13.1 percent) equipment, freight vehicles (0.4 percent), and equipment for
trade (0.6 percent).
Chart 9
Total Lease Portfolio of NBFI 2007
by sector
Equipment for Construction
trade equipment
0.6% 13.1%
Cars
Office
26.0%
equipment
21.3%
Freight vehicles
Agricultural 0.4%
equipment
38.6%
18
Lease conditions offered by the leasing companies clearly indicate their interest to
support small and medium enterprises. However, due to limited funding resources, they
are highly selective about their clients. At the present only clients who had previous
credit history in their respective banks (banks that established these leasing companies)
were offered financial leasing. Terms are quite favorable, compared with other lease
providers, with average lease terms up to 60 months, down payments of 10 percent, and a
flexible lease payment schedule. Interest rates of 1.2-1.8 percent are also lower than that
those of banks and NBFI’s.
Table 2.3. Average Lease Conditions by Leasing Companies and NBFIs, 2007
Leasing Companies NBFIs
Number of Lease Providers 2 8
Duration of lease agreements (months) 12-60 24-36
Average down payment, % 10 30
Interest rate, % 1.2-1.8 1.3-2.0
Average number of leasing deals 21 32
Main currency of lease transactions USD MNT
In 2007 NBFIs financed 383 leasing deals with the total value of $194,400, which is a
significant increase in comparison with 2006, when 89 leasing deals with a total value of
$19,300 were concluded.
2.2.4 Other Lease Providers
A total of 12 other lease providers were identified during the survey. They are the
importers of used cars; suppliers of sewing, food processing, and catering equipment; and
manufacturers of equipment. These lease providers are new to the Mongolian leasing
market as they only started operations in 2006 or 2007. Their outstanding lease portfolio
has increased from $0.53 million in 2006 to $1.7 million in 2007. As a share of the total,
their lease portfolio accounts for 1.9 percent in 2006 and 2.2 percent in 2007.
Lease conditions offered by these other lease providers are mostly for shorter periods of
three to 12 months because they use leasing as a tool to increase their sales. Their interest
rates and down payments are usually on the market average.
Table 2.4. Average Lease Conditions by Other Lease Providers, 2006-2007

2006 2007
Number of other lease providers 7 12
Duration of lease agreements (months) 3-12 3-12
Down payment, % 20-30 10-30
Interest rate, % 1.4-1.9 1.3-1.6
Average number of leasing deals 42 84
Main currency of lease transactions MNT MNT
19
2.3 Sources of Financing

The lessors surveyed receive a considerable portion of their financing from internal
resources, supplier credits, and domestic banks. It must be noted that more than
60 percent of financing come from their own resources for the last four years and that
most of the external financing is received from equipment suppliers. In order for the
leasing industry to grow, the funding base needs to become more diversified and
Mongolian leasing providers need to find alternative sources of financing, such as credits
from local and international banks, bond issues, and increased capitalization.
Table 2.5. Sources of Financing, 2004-2007

Internal: External: External: Total source of
own capital of loans of domestic commercial loans financing
your company banks of equipment (%)
(%) (%) producers (%)
2004 64.70 - 35.30 100
2005 72.85 3.67 23.48 100
2006 81.04 2.11 16.84 100
2007 85.07 2.31 12.34 100
2.4 Overdue Payments

Only one-third of the lease providers reported having experience with late payments. In
2007, 487 lease deals with a total value of $1.09 million were reported as overdue,
representing an increase in comparison with 2006, when 200 deals were overdue with a
total value of $1.21 million. However, the value of deals with payments over 90 days due
of the total value of outstanding lease deals in 2007 was only 1.4 percent, a decrease from
4.3 percent in 2006. The repayment rate was quite high for all lease providers -- well over
90 percent.
Chart 9
Leases > 90 Days Overdue 2003 - 2007
1400 600
1,208.7
1200 1,092.4 500
487
Number of Deals
1000
$ thousands
400
800
300
600 506.1
394.0 200 200
400
213.3
200 30 100
7 72
0 0
2003 2004 2005 2006 2007
Value of deals Number of deals
20
These results most likely reflect the situation when the credit supply is far lower than the
demand, hence leasing companies and other lending institutions can be very selective.
Moreover, although no collateral is needed, required documents (prove of constant
income) in order to receive a leasing service is very complex, which helps to keep the
repayment rate high but limits total volume.
2.5 Main Barriers to Leasing Development
The surveyed respondents were asked to indicate the main barriers to leasing
development in Mongolia. The most frequently mentioned barriers were: inconsistency in
legislation and high cost of funding, followed by lack of funding resources, high tax
burden, and lack of financial transparency. Approximately 40 percent of respondents
named legislation gap/inconsistency and high cost of funding as the main barriers to
leasing development.
The above mentioned constraints, combined with high interest rates, decrease the
attractiveness of leasing for domestic and foreign investors. Even those banks that have
access to relatively cheap funds like deposits face problems with financing, therefore the
leasing of consumer items is more popular with banks since these products are perceived
as less risky. Other types of lessors such as equipment suppliers or non-bank financial
institutions, are at even more disadvantage since they can not rely on deposits and must
rely on external funding.
Chart 10
Key Barriers to Leasing Development 2008
(in percentage terms)
Lack of leasing specialists 2
Undeveloped second-hand equipment market 4
Problems with accounting of leasing operations 4
Potential clients are not aware about leasing opportunities 8
Lack of eligible clients 8
Lack of financial transparency 10
High taxation burden 10

Lack of funding sources 14
High cost of funding 18
Legislation gaps/ inconsistency 22
0 10 20 30
21
2.6 Conclusion
The survey shows significant positive development of the leasing sector in Mongolia.
The leasing industry reached $89.6 million of new leases in 2007, a 163 percent increase
from $34.1 million in 2006 and a 725 percent increase from $10.9 million in 2005. In
terms of the outstanding leasing portfolio the market grew from $11 million in 2005 to
$80 million in 2007. The number of lease providers also increased -- from 13 in 2005 to
48 in 2007 – reflecting the positive changes in the legal environment for leasing industry
in Mongolia. Furthermore, the repayment rate was high for all lease providers, well over
90 percent. The sector has stabilized to some degree as indicated by the more favorable
terms offered – longer terms and lower interest rates. As leasing companies command a
larger share of leasing providers, terms should become more favorable and volumes will
grow. However, lack of funding sources and inconsistency in legislation continue to limit
the growth of leasing in Mongolia.
SECTION THREE: LEGAL FRAMEWORK FOR LEASING
3.1 General Overview
Since 2004, Mongolia has significantly improved its legal framework for leasing. The
new legislation, developed and approved with the active assistance of the IFC Mongolia
Leasing Development Project, supported the development of the leasing sector.
The Law on Financial Leasing clearly defines financial leasing and renting, property
leasing and other types of contracts mentioned in the Civil Code, providing the basis for
amending the tax legislation to put financial leasing on a level playing field with other
types of financing.
The Law on Financial Leasing is in line with the Civil Code and does not limit the
definition of financial leasing to a three-party agreement. To determine that a contract is a
financial lease, it must adhere to one of the following criteria:
o at the end of the lease term the ownership of the asset is transferred to a lessee;
o the term of a lease is at least three-fourths of the useful life of the asset
(Article 5 of the Corporate Income Tax Law);
o total amount of lease payments exceed 90 percent of the value of the asset.
Apart from providing a definition of financial leasing, there are several legislative
advantages in the new law on financial leasing that have greatly improved the legal
environment and have removed the main legal barriers for development of leasing in
Mongolia. For example, in the previous leasing practice, the prevailing majority of
financial lease contracts were two-party agreements, i.e. they were concluded between a
lessor and a lessee. This is explained by the preference of such two-party contracts in the
22
Civil Code and the fact that the existing equipment providers often served as lessors
going into contracts directly with lessees. The new leasing legislation does not give any
preference to either a two-party or a three-party contract.
Neither the Civil Code nor the bankruptcy legislation contained provisions guaranteeing
safe return of a leased asset to a lessor in case of a lessee’s bankruptcy. Likewise, there
were no provisions allowing a lessee to securely continue the financial lease in case the
initial lessor is bankrupt and his/her duties has been overtaken by a successor. Therefore,
the new leasing legislation has cleared up this situation.
The Mongolian legislation does not determine in which cases a lessor can repossess a
leased asset from a lessee. This means that parties to a leasing deal should negotiate and
agree in each case. However, the new leasing law defines minimum conditions which
would allow a lessor to repossess his/her assets on legal grounds.
In addition, the new legislation has removed licensing of leasing activities, taking away at
least one administrative barrier to development of the market.
To summarize, the legislative advantages as introduced by the Law on Financial Leasing

are as follows:
o Introduction of secondary leasing to ensure that lessors can lease equipment
repossessed from the first client to the second client;
o More precise definitions of subleasing and leaseback arrangements;
o Clearer non-court repossession rights for the lessor;
o Clearer rights and responsibilities of a supplier, a lessor, and a lessee;
o Absence of licensing requirement;
o Absence of obligatory registration of the lease agreement; and,
o Leasing as an activity is not supervised by the government structures.
3.1.1 Legal Environment Awareness
As was expected, the new leasing legislation stimulated leasing market growth: 80
percent of the surveyed respondents agreed that the legal environment in Mongolia has
improved.
Most of the lease providers (74 percent) stated they were aware of the new law on
financial leasing and the amendments to the VAT law and 64 percent indicated they were
aware of the amendments to the CIT law. In addition, 29 percent of lease providers
reported that the law on financial leasing positively affected their leasing operations,
while another 29 percent stated they have been affected negatively as well as positively.
23
3.1.2 Dealing with courts
Only two companies reported that they had experience in dealing with courts regarding
their leasing deals. In the last five years, a total of 13 cases were brought to the court, two
in 2007. Approximately 80 percent of all cases had positive outcomes for lessors.
3.2 Accounting and Taxation of Financial Leasing
Accounting for leasing: Mongolia adopted the International Accounting Standards (IAS)
in 2002, when the accounting law was enacted and it became mandatory for all
businesses and organizations to disclose their financial information in conformity with
the IAS. In accordance with this, the accounting of leases in Mongolia is based on
IAS 17.
Taxation of leasing: In accordance with the taxation legislation in effect since 1993,
financial leasing and operating lease/rent had been taxed in the same way. Amendments
approved in June of 2006 and enacted in January 2007 differentiate between financial and
operating lease, mainly based upon classification criteria of IAS 17. Also, a lease contract
should not be shorter than 12 months in order to classify as financial lease.
The following amendments to the taxation legislation have allowed financial leasing to
compete with bank loans.
Corporate income tax (CIT): The new tax legislation regards a financial lease as a
financial transaction, when a lessor lends a lessee the amount needed for the lessee to
purchase the (leased) asset. Accordingly, the interest portion of the lease payment is
recognized as revenue for the lessor and is accounted as expense for the lessee. At the
same time, based on the mutual agreement, the lessor and the lessee decide who will
record the leased asset and depreciate it for tax purposes.
The depreciation method for the leased asset complies with the depreciation norms
established in the CIT Law. The term of depreciation is either five or ten years,
depending on the type of an asset. There is a special norm of three years for depreciation
of computers and spare parts for computers. Depreciation is calculated using the straight-
line method.
In the previous version of the CIT law, only compulsory insurance premiums were
accounted as expenses and deducted from the taxable income; the new tax amendments
have incorporated voluntary insurance premiums in the category of expenses that are
deductible from the taxable income as well.
Withholding tax for non-resident lessors: Starting from January 1, 2007, non-resident
lessors are taxed at the rate of 20 percent only on the interest income from cross border
24
financial leases and on the total amount of the lease income from cross border operational
leases.
Value added tax (VAT): Apart from the decrease of the current VAT rate from 15 percent
to 10 percent, the new legislation has recognized financial leasing as a financial service
and has exempted the interest portion of lease payments from VAT.
The acquisition of a leased asset (domestic purchase or import) is subject to VAT.

However the VAT law provides for a flexible schedule for paying VAT levied on the
acquisition of a leased asset. A lessor or a lessee pays VAT in accordance with the lease
payment schedule.
As a result of these tax amendments, as of October 1, 2007 a total of 429 taxpayers

deducted $2.6 million from their taxable income as reported by the General Department
of the National Taxation.
3.3 Constraints for Further Development
The year 2007 showed that though the newly enacted legislation has had significant
impact on the development of the leasing services in Mongolia, there are still things to be
done to improve regulation of this sector.
The main constraints to the leasing market development are the following:
o Contradictions between the Law on Financial Leasing and some other legislative
acts: Under the present regulatory system, the role of bank and non-bank financial
institutions (NBFIs) in financial leasing activity is somewhat unclear. In
accordance with the Law on Financial Leasing, a few amendments were made to
the banking law and the law on non-bank financial activities removing financial
leasing from the list of activities allowed for banks and NBFIs. Since financial
leasing is not included in this list it seems that banks and NBFIs are not allowed
to provide financial leasing. At the same time, the banking law and the law on
non-bank financial activities state banks and NBFIs can be engaged in other
financial activities or services permitted by laws and regulations. According to
this provision, banks and NBFIs seem to be allowed to conduct financial leasing
activities. Therefore, clarification of the bank and NBFIs status in lease
engagement by amending these laws is necessary.
o Recording leased assets on books for a lessor or a lessee. Furthermore the choice
for a lessor and a lessee to record a leased asset allowed by the CIT Law
contradicts IAS, which state that a lessee will record a leased asset in his/her
books.
o Absence of registration system for leased assets: Registration of a leased asset is

an important factor to reduce risk for a lessor. There is a certain possibility to use
25
a leased asset as collateral to receive a loan from another financial institution and
there is no system in place to control this situation. Under the new legislation a
lessor’s risk is comparatively high, in part because there is no proper system and
no regulatory agency for registration of movable and leased assets. At the same
time, the new law states that the parties shall register a leased asset on a voluntary
basis, while as mentioned earlier there is no regulatory agency for registration.
Thus even if parties have agreed to register a leased asset, they are not able to
register it. A proper registration system is needed for lessors to establish priority
over the leased asset, and ensure that other parties do not place a lien against the
leased asset.
o Improper statement for repossession of leased asset. A lessor has the right to
temporarily repossess a leased asset if a lessee defaults to meet certain conditions.
When these conditions have been eliminated, a lessor returns the leased asset to a
lessee. However, a lessor has no right to impose an interest/fine for the period that
the lessee has defaulted; though it may take a week, a month, or a year for the
lessee to resume payments. Therefore a statement for repossession of a leased
asset must be reconsidered.
o Lack of consistency in taxation (or explanatory documents such as instructions

from the relevant government agencies) makes taxation procedures for leasing
transactions unclear, leaving the parties in a leasing deal with their own
interpretations of taxation legislation.
o Less attractive tax treatment for a leasing transaction in comparison with a bank
loan. Enactment of the tax amendments has not increased attractiveness of leasing
compared to bank loans. In order to make leasing more competitive with bank
loans or other financing options, further changes should be introduced such as
deduction of provision funds for a bad debt from the taxable income and ability to
use accelerated depreciation.
3.4 Conclusion
With support of the Mongolia Leasing Development Project important changes to the
legislation regulating leasing industry were developed and brought into life.
The Financial Leasing Law, together with the tax amendments, which came into force in
January 2007, have brought positive changes to the economy, allowing leasing to become
a powerful tool that can help transform Mongolia from a supplier of raw materials into a
manufacturer of end products. New legislation helped financial leasing compete with
bank lending, mainly as a result of removing the unfavorable tax treament of leases in
comparison with loans. As a result more institutions offered equipment and vehicle
leasing to businesses and individuals. These expanded financial leasing services helped
small and medium enterprises improve production capacity by modernizing their
equipment, thereby helping create new jobs and raise income levels. Awareness of the
26
new leasing law is high among survey respondents. In the two cases where repossession
cases needed to be resolved by the courts, the responding lessors had a positive outcome.
However, there is still room for further improvement in legislation like resolving
contradictions between various legal acts, providing more favorable conditions in
taxation, and clarifying vague provisions.
27
Mongolia Leasing Industry Survey, 2008. Annex 1: Main Indicators of Mongolian Leasing Industry
Annex 1. Main Indicators of Mongolian Leasing Industry, 2003-2007,

by category of lease providers
Number and value of Number and value of
Number and value Number
outstanding lease leases > 90 days
of all new leases of lessees
portfolio overdue
Total outstanding
Category of Outstanding amount of Number of
Total amount of new amounts of lease
leasing payments for the unique
Lease Year leases during the year payments, not just the
portfolio of leased assets lessees
Providers overdue portion
As of Dec 31 Between Jan 1- Dec 31 As of Dec 31 As of Dec 31
Number Value in USD Number Value in USD Number Value in USD Number
2003 366 1,929,131 493 473,168 7 213,350 560

2004 6,039 6,352,826 7,753 5,568,540 30 506,078 5,824
Total 2005 17,851 10,955,098 23,936 10,865,499 72 393,998 16,831
2006 38,018 27,996,957 47,218 34,097,041 200 1,208,690 36,403
2007 82,764 80,206,885 94,171 89,639,188 487 1,092,400 79,911
2003 306 78,920 485 108,362 1 24 492
2004 5,900 1,320,287 7,632 2,368,259 23 9,152 5,667
Banks 2005 17,642 4,452,943 23,706 8,131,731 67 143,715 16,557
2006 37,359 19,533,685 46,499 30,963,447 185 197,998 35,614
2007 81,003 56,790,160 92,224 71,190,657 416 621,386 77,969
2003 60 1,850,211 8 364,805 6 213,326 68
2004 105 4,869,536 83 3,055,413 7 496,926 119
Suppliers of
equipment 2005 133 6,179,318 140 2,545,162 5 250,283 184
2006 192 7,257,838 181 2,101,140 7 429,407 252
2007 438 20,407,171 471 15,873,804 8 180,441 494
2003 - - - - - - -
Independent 2004 28 162,113 27 143,438 - - 27
leasing 2005 51 315,236 34 175,172 - - 34
companies 2006 83 659,876 41 386,240 4 536,540 41
2007 119 1,139,380 50 585,000 11 89,734 50
2003 - - - - - - -
Non-Bank 2004 6 892 11 1,430 - - 11
Financial 2005 25 7,601 56 13,434 - - 56
Institutions 2006 40 7,060 89 19,301 - - 88
2007 195 133,754 383 194,389 - - 321
2003 - - - - - - -
Other types 2004 - - - - - - -
of lease 2005 - - - - - - -
providers 2006 344 538,498 408 626,912 4 44,745 408
2007 1,009 1,736,419 1,043 1,795,339 52 200,839 1,077
Mongolia Leasing Industry Survey, 2008. Annex 2: Survey Methodology
Annex 2. Survey Methodology
The IFC Mongolia Leasing Development Project, supported by the Japanese government
and IFC trust funds, operated in Mongolia between July 2004 and September 2006. The
project was designed to improve the leasing practices in Mongolia with the goal of
increasing leasing volume and the quality of leasing products. By the time of the project
closure it helped establish the necessary preconditions for a healthy leasing sector,
supported by proper legislation favorable to the development of leasing. The project
played the role of a catalyst by developing leasing legislation. The new leasing legislation
and leasing related tax legislation developed with the Project’s assistance were enacted
on June 22, 2006, and January 1, 2007 respectively. One year after the legislative changes
came into effect, the time was right to evaluate the market and take the opportunity to
assess the impact of the project
The survey was conducted in March-April 2008 to capture the previous year’s market
results.
The survey gathered statistics from all lessors in Mongolia on their leasing transactions
and their opinion on the regulatory environment for leasing in the country and
perspectives for its development. The survey covered the period of 2003 and 2007.
Respondents were asked to give financial activity data as of December 31, 2007.
The survey targeted all lessors in Mongolia. 50 companies were identified for interviews,
and 48 lessors were included in the survey sample, representing 100 percent of the leasing
services providers in Mongolia. Most of respondents were located in Ulaanbaatar, the
capital of Mongolia. The sample was comprised of 11 banks, 2 independent leasing
companies, 8 non-bank financial institutions, 15 suppliers of equipment and machinery,
and 12 other types of lease providers (manufacturers, suppliers of product other than
equipment).
The survey was conducted through face-to-face interviews with managers of the
respondent companies. Collecting of information also included interviews with
government officials and other market participants. A local survey company and a former
IFC Project staff member were hired to do the work.
A questionnaire developed by IFC was used for interviews. The questionnaire (attached
as a separate file) consisted of 36 closed-ended and open-ended questions and was
divided into 5 sections as follows:
I. Information about lessor
II. Leasing translations – statistics
III. Leasing in Mongolia – status
IV. Relations with MLDP/IFC
V. Leasing Association
The last section on more detailed financial information for 2006 and 2007 was intended
for the MLDP clients only.
Mongolia Leasing Industry Survey, 2008. Annex 3: Questionnaire for Lessors
Annex 3. Questionnaire for Lessors
Questionnaire for Lessors # ________Date of Interview_______________

(dd/mm/yyyy)
Mongolia Leasing Development Project (MLDP): follow-up survey, 2008
International Finance Corporation, the World Bank Group, www.ifc.org
Contact information
Ms. Hongorzul Dari, Mongolia Lessors’ Survey Coordinator, IFC, the World Bank Group
Address: Mongolia, Ulaanbaatar, POB 46/800
Tel: +976 7011 6889; +976 9924 0630 E-mail: hongor55@hotmail.com
Information about your company will be treated as confidential and will be used only in the aggregated
format. Your company’s specific information will not be released.
I. INFORMATION ABOUT LESSOR
Interviewer: questions 1.1-1.11 are filled in by Interviewer and checked with Respondent
1.1 Company Name
Codes for 1.2:
Bank=1
Bank subsidiary/affiliates=2
1.2 Your company’s type of lessor Captive(=equipment supplier)=3
Independent leasing company=4
Non-bank financial institution (NBFI)=5
Other (please specify)=6
Codes for 1.3:
Joint stock company=1
1.3 Legal form of your company Limited liability company=2
Foreign invested company=3
Other (please specify)=4
1.4 Mailing address
1.5 Telephone
1.6 Fax
1.7 E-mail
1.8 Web-site
1.9 Director/President
1.10 Name of person completing survey

1.11 Contact info for person
completing survey
1.12 When was your company founded? ____/_______ (mm/yyyy)
1.13 When did your company start its leasing operations? ____/_______ (mm/yyyy)
1.14 Number of employees engaged in leasing operations _______________ people
1.15 Amount of equity capital _______________ Tugrik
30
1.16 Ownership structure, %

1.16.1 Public %
1.16.2 Private (domestic) %
1.16.3 Foreign investors %
II. LEASING TRANSACTIONS – STATISTICS
2.1 What percentage of your portfolio is financial or operating leasing, %

2.1.1 Financial leasing % 2.1.2 Operating leasing %
Interviewer: ask about financial leasing operations.
2.2 Data on leasing operations

2.2.1 Number and value 2.2.2 Number and value 2.2.3 Number and value 2.2.4 Number
of outstanding lease of of leases > 90 days of lessees
portfolio all new leases overdue
Outstanding amount of leasing Total amount of new leases during the For overdue leases report total Number of unique
Year payments for the portfolio of leased year outstanding amounts of lease lessees
assets payments (and not just the overdue
portion)
As of Dec 31 Between Jan 1- Dec 31 As of Dec 31 As of Dec 31
2.2.1.1 2.2.1.2 2.2.2.1 2.2.2.2 2.2.3.1 2.2.3.2
Number Value (Tugrik) Number Value (Tugrik) Number Value (Tugrik) Number
2003
2004
2005
2006
2007
2003 2004 2005 2006 2007

2.3 Average leases terms and conditions
2.3.1 Average duration of lease agreements, months
2.3.2 Average down payment, %
2.3.3 Average interest rate, %
2.3.4 Currency of lease transactions, %
2.3.4.1 Tugrik
2.3.4.2 US$
2.3.4.3 Other (please specify)
2.4 Repayment rate, %
2.5 Court practice
2.5.1 Number of legal disputes you were involved in
2.5.2 Positive outcome of legal disputes, %
2.6 Number of vendors you work with
2.6.1 Local vendors
31
2.6.2 Foreign vendors

2.7 Portfolio of leased assets by equipment type, end of fiscal year=31 Dec., Tugrik
2003 2004 2005 2006 2007
2.7.1 Mining equipment
2.7.2 Food processing
Manufacturing equipment (skin processing,
2.7.3
shoe making, textile equipment, etc.)
Equipment for trade (refrigerators, shelves,
2.7.4
electronic weights, etc.)
2.7.5 Medical equipment
2.7.6 Equipment for construction
Office equipment (computers, copiers, faxes,
2.7.7
etc.)
2.7.8 Agricultural equipment
2.7.9 Telecommunication
2.7.10 Airplanes
2.7.11 Railroad transport
2.7.12 Freight vehicles
2.7.13 Passenger transport (except cars)
2.7.14 Cars
2.7.15 Real estate (buildings & constructions)
2.7.16 Other (please specify)
2.8 Sources of Financing 2004 2005 2006 2007

2.8.1 What sources does your company use for
financing of leases
• Internal: own capital of your company, Tugrik
• External: loans of domestic banks, Tugrik
• External: loans of foreign banks, Tugrik
• External: commercial loans of equipment
producers, Tugrik
• External: issue of bonds, Tugrik
• External: funds from international finance
institutions , Tugrik
• other (please, indicate_______________) ,
Tugrik
2.8.2 If you received external financing, please
indicate the role played by the IFC MLDP in helping
you access that financing?*
Enabled=1, Supported=2, None=3
*Definitions:
ENABLED (=1) means that your collaboration with the IFC project played a key role in your ability to secure this
financing.
SUPPORTED (=2) means that you most likely would have received this financing regardless of collaboration with the IFC
project, but your ability to attract the financing improved as a result of the assistance received by the project.
NON (=3) means that your collaboration with the IFC project played no role in your ability to attract financing.
32
III. LEASING IN MONGOLIA - STATUS
3.1 Please evaluate the changes in the leasing environment in Mongolia over the last three years: ____
Significantly improved=1, Somewhat improved=2, Unchanged=3, Slightly worsened=4
3.2 Please provide the following information on legislation affecting leasing operations:
LAW Law on Financial Amendments to the Amendments to the CIT

Leasing (22-Jun-06) VAT Law (29-Jun-06) Law (29-Jun-06)
Description The main significance of this law is The VAT rate is expected to go The leased asset will be recorded
that it gives a definition of financial down from 15% to 10%. The VAT and depreciated on the books of
leasing that discriminates clearly law exempts interest income either a lessor or a lessee, based on
between financial leasing and generated by financial leasing from their mutual agreement; the
renting, property leasing and other VAT and for financial leasing insurance premium for the leased
types of contract mentioned in the allows the VAT on leased assets to asset will be deductible from the
Civil Code, providing the basis for be charge according to the lease taxable income; non-resident
amending the tax laws to put payment schedule instead of the lessors will pay taxes only on their
financial leasing on a level playing whole amount paid at once when a interest income (not on the full
field with other types of financing. lease agreement is entered into lease payment as it was the case);
force. and interest paid for financial lease
is deductible from taxable income
of the lessee.
3.2.1 Are you aware of
this legislation?
Yes=1, No=2
3.2.2 If YES, how did
this legislation affect
your leasing operations
Positively=1,
Neither positively nor
negatively=2,
Negatively=3,
Not sure=4
33
3.3 What are the main barriers to development of leasing in Mongolia in decreasing order of importance?
(please rate 1, 2, 3, etc.)
3.3.1 Lack of funding sources
3.3.2 High cost of funding
3.3.3 Lack of eligible clients
3.3.4 Lack of financial transparency
3.3.5 Potential clients are not aware about leasing opportunities
3.3.6 Legislation gaps/ inconsistency
3.3.7 High taxation burden
3.3.8 Problems with accounting of leasing operations
3.3.9 Licensing of leasing No licensing in Mongolia
3.3.10 Lack of leasing specialists
3.3.11 Vendors are not interested to work with leasing companies
3.3.12 Undeveloped second-hand equipment market
3.4 What are your expectations about future development of leasing in Mongolia? Please specify
3.5 What changes should be introduced for further development of leasing? Please specify
34
IV. RELATIONS WITH MLDP/IFC
4.1 Did you receive the following advisory services from the International Finance
Corporation’s Mongolian Leasing Development Project (MLDP), which was active
from 2004 to 2006? Yes=1, No=2
4.1.1 Receive project publications/materials
4.1.2 Participate in seminars/workshops/trainings?
4.1.3 Receive consultations on tax issues
4.1.4 Receive consultations on legal issues
4.1.5 Receive consultations on accounting issues
4.1.6 None of the above
4.2. Did you use information received from the MLDP to improve your company’s
leasing operations?
Yes, to a great extent=1, Yes, to some extent=2, No, not at all=3
4.3. Please assess the services you received from the MLDP
Excellent=1, Good=2, Satisfactory=3, Somewhat unsatisfactory=4, Completely unsatisfactory=5
4.4. List three benefits you have experienced as a result of working with the Project:
4.5. Please provide any feedback to the Project staff (anonymous):
V. LEASING ASSOCIATION
5.1 Do you know about any leasing association(s) in Mongolia? Yes=1, No=2
5.1.1 If YES, please specify name(s) of organization(s)
5.1.2 If YES, are you a member? Yes=1, No=2
5.1.3. If YES, please specify the name of organization(s) in which you are a member
5.2 Do you know about any other public organization which expresses interests of
lessors? Yes=1, No=2
5.2.1 If YES, please specify name(s) of organization(s)
5.2.2 If YES, are you a member? Yes=1, No=2
5.2.3. If YES, please specify name of organization(s) in which you are a member
THANK YOU FOR YOUR PARTICIPATION!
35
FOR MLDP CLIENTS ONLY

The following table is to be completed by the leasing companies, which received advisory services from
the Mongolian Leasing Development Project and which are NOT currently IFC Investment Clients.
Exchange rate For 2007: 1US$= 1170 MNT For 2006: 1US$= 1176 MNT
Total leasing New leasing Leases overdue

portfolio volume >90 days
Lessees
outstanding
2007 end of
during fiscal year fiscal
end of fiscal year end of fiscal year
between Jan1 – year
as of Dec 31 as of Dec 31
Dec 31 as of Dec
31
For overdue leases
Outstanding amount of report total outstanding
Total amount of new
EXPLANATIONS leasing payments for the amounts of lease Unique
leases during the year
portfolio of leased assets payments (and not just
the overdue portion).
Sum, Sum,
Number of Number Sum, Number
Tugrik, Tugrik
outstanding of new Tugrik by of leases Number
by by
deals deals category overdue
category category
Total portfolio
Business equipment - for
Micro, SME and Corporate
Subtotal
less then MNT 1.200 thousand
from MNT 1.200 th. to MNT 6 mln
from MNT 6 mln to MNT 12 mln
from MNT 120 mln to MNT 1.2 bln
from MNT 1.2 bln to MNT 2.4 bln
more than MNT 2.4 billion
Consumer items
Subtotal
36
Total leasing New leasing Leases overdue

portfolio volume >90 days
Lessees
outstanding
2006 end of
during fiscal year fiscal
end of fiscal year end of fiscal year
between Jan1 – year
as of Dec 31 as of Dec 31
Dec 31 as of Dec
31
For overdue leases
Outstanding amount of report total outstanding
Total amount of new
EXPLANATIONS leasing payments for the amounts of lease Unique
leases during the year
portfolio of leased assets payments (and not just
the overdue portion).
Sum, Sum,
Number of Number Sum, Number
Tugrik, Tugrik
outstanding of new Tugrik by of leases Number
by by
deals deals category overdue
category category
Total portfolio
Business equipment - for
Micro, SME and Corporate
Subtotal
less then MNT 1.200 thousand
from MNT 1.200 th. to MNT 6 mln
from MNT 120 mln to MNT 1.2 bln
from MNT 1.2 bln to MNT 2.4 bln
more than MNT 2.4 billion
Consumer items
Subtotal
37

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Government of Japan

MONGOLIA LEASING INDUSTRY SURVEY

IFC MONGOLIA LEASING DEVELOPMENT PROJECT

© 2008 International Finance Corporation

EXECUTIVE SUMMARY .............................................................................................. 6

SECTION ONE: MACROECONOMIC SITUATION................................................. 8

SECTION TWO: LEASING INDUSTRY OVERVIEW............................................ 10

SECTION THREE: LEGAL FRAMEWORK FOR LEASING ................................ 22

Annex 1. Main Indicators of Mongolian Leasing Industry, 2003-2007,

Chart 1. GDP growth, % .............................................................................................. 8

The survey shows significant positive development of the leasing industry in

SECTION ONE: MACROECONOMIC SITUATION

1.1 General Overview

Mongolia has made significant progress in achieving macroeconomic stability and

Source: National Statistics Office, Statistical Yearbook, 2007

1.2 Financial Sector

Table 1.1. Main Ratios of Mongolian Financial Sector, %, 2000 - 2006

Source: Bank of Mongolia, Annual report 2006

SECTION TWO: LEASING INDUSTRY OVERVIEW

2.1 Leasing Industry

Number of Lease Providers, 2003 - 2007

Table 1.2. Lease Providers by Categories, 2003-2007

Outstanding Lease Portfolio by Lease Providers 2007

Total Lease Portfolio 2007

2.2 Providers of Leasing

Table 2.1. Average Lease Conditions by Banks, 2003-2007

2.2.2 Suppliers of Equipment and Machinery

Total Lease Portfolio of Equipment Suppliers 2007

Table 2.2. Average Lease Conditions by Equipment Suppliers, 2003-2007

2.2.3 Independent Leasing Companies and NBFIs

2.2.4 Other Lease Providers

Table 2.4. Average Lease Conditions by Other Lease Providers, 2006-2007

2.3 Sources of Financing

Table 2.5. Sources of Financing, 2004-2007

2.4 Overdue Payments

Leases > 90 Days Overdue 2003 - 2007

Value of deals Number of deals

2.5 Main Barriers to Leasing Development

Undeveloped second-hand equipment market 4

Problems with accounting of leasing operations 4

Potential clients are not aware about leasing opportunities 8

Lack of eligible clients 8

Lack of financial transparency 10

High taxation burden 10

SECTION THREE: LEGAL FRAMEWORK FOR LEASING

3.1 General Overview

To summarize, the legislative advantages as introduced by the Law on Financial Leasing

3.1.1 Legal Environment Awareness

3.1.2 Dealing with courts

3.2 Accounting and Taxation of Financial Leasing

The acquisition of a leased asset (domestic purchase or import) is subject to VAT.

As a result of these tax amendments, as of October 1, 2007 a total of 429 taxpayers

3.3 Constraints for Further Development

o Absence of registration system for leased assets: Registration of a leased asset is

o Lack of consistency in taxation (or explanatory documents such as instructions

Annex 1. Main Indicators of Mongolian Leasing Industry, 2003-2007,

2003 366 1,929,131 493 473,168 7 213,350 560

Annex 2. Survey Methodology

Annex 3. Questionnaire for Lessors

Questionnaire for Lessors # ________Date of Interview_______________

I. INFORMATION ABOUT LESSOR

1.4 Mailing address

1.10 Name of person completing survey

1.12 When was your company founded? ____/_______ (mm/yyyy)

Questionnaire for Lessors # Date of Interview_______

1.12 When was your company founded? /___ (mm/yyyy)