AMBASSADOR GALT: Distinguished guests, members of the press – good morning.
I am pleased to be here for today’s launch ceremony.
Small and medium enterprises (SMEs) are essential to the vitality of any market economy.
Economists view SMEs as the engines of economic growth and the incubators of innovation in free market economies across the globe.
In the United States, an astounding 99.7 percent of all firms qualify as small-to-medium in size.
Our SMEs provide 64 percent of new private sector jobs and 49 percent of all private sector employment.
In the United States, SMEs account for 50 percent of the private, non-farm gross domestic product.
In Mongolia, by contrast, SMEs account for only 20 percent of GDP.
Clearly there is opportunity for growth in SME contributions to Mongolia’s economy.
This audience knows only too well the economic story of Mongolia over the last few years – commodity price drop, foreign direct investment drop, economic growth flat-lining.
Economic experts agree that for its long-term economic stability, it is essential that Mongolia diversify its economy beyond the extractive sectors.
Surveys of small businesses in Mongolia indicate that 75 percent of SMEs are interested in obtaining loans to cover fixed and working capital needs to expand their businesses.
However, these same surveys indicate that the sustainability and growth of SMEs in Mongolia are severely constrained by their lack of access to finance.
In June 2015, the Government of Mongolia created the Loan Guarantee Fund to help meet this demand.
Still, the majority of applicants to the fund fail to meet the loan requirements because of insufficient collateral, lack of financial education, and inadequate business plans.
At the same time, commercial banks are not increasing their loan portfolios for SMEs because of the slowing economy and concerns about the credit risk of small businesses.
Therefore, SMEs remain under-served in the financial sector in terms of access to credit and appropriate financial products to meet their needs.
This is where the REACH project comes in.
The U.S. Agency for International Development is funding the REACH project with the objective of increasing access to credit for small and medium-sized enterprises across Mongolia – to improve under-served SMEs’ access to finance in a way that will lead to financially stronger and sustainable business.
The goal is to assist SMEs to borrow a minimum – a minimum – total of $25 million over the next two years.
REACH proposes to achieve this ambitious goal by matching potential borrowers and their needs with appropriate lenders and production inputs.
REACH will help client SMEs qualify for these loans by making available specific technical assistance – this could include preparing a solid business plan, setting up accounting systems derived from international financial institutions, improving financial or back-office operation systems, or perhaps simply helping borrowers understand the lending documentation that can vary from bank to bank.
This program will be implemented in partnership with financial institutions, including Xac Bank and Khan Bank, both of whom I am pleased to see represented in the audience here today.
The project is also partnering with the Government of Mongolia’s Credit Guarantee Fund, which can provide credit guarantees of up to 60 percent of individual loan amounts by these banks to SMEs.
This will reduce the credit risks of the banks and allay their concerns about lending to these important clients.
I am pleased that Development Solutions will be USAID’s implementing partner for the REACH project.
USAID’s relationship with Development Solutions goes back to its origins, when it was established under the GER Initiative, a USAID project that supported employment and small business development in ger districts.
Development Solutions has continued as a self-sustaining NGO, supporting small and medium enterprises, and I am confident they will do an excellent job on the REACH project.
I wish the project every success.
Thank you very much.