BOLD MagvanCEO, XacBank

Eco Finance in Mongolia

Overview of XacBankFourth Largest Mongolian Bank and Leader in Microfinance and SME Segments

• XacBank Operates in every province ofMongolia through 107 branches, over 888mobile banking merchants, and 49Cooperatives

• Diverse base of domestic andinternational shareholders, includingMongolian Alt Company, IFC, EBRD, andORIX Financial Group

• Leads the Mongolian Banking Sector inCorporate Governance and CorporateSocial Responsibility

Identifying the RisksSignificant Environmental Issues Threaten the Benefits of Economic Growth

Ulaanbaatar is the second most pollutedcity in the world – air pollution contributesto 1 in 10 deaths and costs USD 450 millionannually.

Mongolia’s energy infrastructure is agingand approximately one third of all powergenerated is lost to inefficiency beforereaching consumers.

Mongolia is one of the most carbonintensive economies in the world, emittingup to 10 times more greenhouse gascompared to GDP than the world average.

The challenge: How to transition fromgrowth to sustainable green growth?

Tackling Pressing ChallengesXacBank and Partners Have Leveraged Microfinance to Reduce Air Pollution

• XacBank has implemented a project to provide access to energy efficient stovesand insulating ger blankets since 2010.

• The Millennium Challenge Account for Mongolia, Ulaanbaatar Clean Air Fund, andUlaanbaatar Clean Air Program provided asset subsidies to reduce the cost ofefficient stoves and insulating ger blankets for households.

• XacBank partnered with FMO, the Dutch Development Bank, to offer a low-costmicrofinance loan product to ensure that the lowest income households in the gerdistricts could access clean energy.

Innovating with Eco Products

Subsidized eco products are distributed through product and demonstration centerslocated in the ger districts. These stoves and ger blankets reduce the amount of coalrequired to keep a ger warm in the -40° winters by up to 50%.

XacBank’s eco product program has been highly successful, distributing over 136,000efficient stoves and 17,000 ger blankets to over 120,000 households in the gerdistricts. It is estimated that this has led to a reduction in air pollution levels of 10-30% between 2011 and 2014.

Products Meeting the Unique Needs of Ulaanbaatar Help Reduce Pollution

Tracking ImpactWith Advanced Tracking and Monitoring, XacBank Knows its Progress

With phone or in-person monitoring of products occurring every year, XacBank providesunparalleled quality control and assurance for the products that it distributes. Regularmonitoring and surveying also permits XacBank to determine the impact of its stoves, allowingfor future monetization of carbon emission reductions to make eco programs not onlyenvironmentally sustainable, but financially sustainable.

• Staff equipped with GPS-enabledAndroid mobile devices accompanyand confirm all installations.

• Installations can then be queried onMicroEnergy Credits’ Tracker platformto see their current status.

Scaling up Green FinanceDeveloping Innovative Sources of Funding Makes Green Finance Sustainable

In late 2012, XacBank signed a loan agreement with Deutsche Bank’s Global Climate Partnership Fund both to support SMEs that distribute or install products that reduce greenhouse gas emissions and to provide mortgages for ger district residents moving to modern apartment buildings or energy efficient houses.

To date, XacBank has disbursed over USD 8,900,000 in energy efficiency and renewable energy loans. These have gone to biodiesel producers, improved construction material producers, more efficient heat-only boilers, and families moving into more energy efficient housing.

Utilizing a credit line from the microfinance organization Kiva to cater to microloan customers, XacBank is now able to provide eco loans across all customer levels – from micro customers to corporate clients.

Revenue from eco loans will allow XacBank to continue incentivizing sustainability.

Building on SuccessLeveraging International Expertise to Expand Green Finance in Mongolia

Environmental Impact

•Secure Financing•Enhance Technical Capacity• Strengthen Partnerships

XacBank has established itself as the preeminent commercial bank in Mongolia in the energyefficiency and renewable energy space, but more work is needed to address Mongolia’senvironmental challenges and support a trajectory to a green economy.

XacBank has begun capacity building with the IFC to build to provide financing to SMEs, toincrease their energy efficiency, and to lend for clean and renewable energy projects.

•Microfinance for stoves, ger blankets, solar panels

•SME and corporate lending for energy efficiency and

renewable energy

•Mortgage loans for gerdistrict households

•Support efficient infrastructure

•Finance eco projects

•Increase mix of household-level clean energy products

•Provide debt for EE SMEs

XacBank has registered various stages of its ecoproduct program with both the United Nation’s CleanDevelopment Mechanism (CDM) and with thevoluntary market’s Gold Standard registry.

XacBank’s first carbon credit issuance is expected atthe end of this year. The revenue realized from thesecarbon credit sales will be reinvested into XacBank’sgreen finance program to combat air pollution andreduce greenhouse gas emissions in Mongolia.

In addition to CDM and the Gold Standard, XacBank isexploring development of projects that utilize Japanand Mongolia’s Joint Crediting Mechanism (JCM).

Sustainability through CarbonDeveloping Innovative Sources of Funding Makes Green Finance Sustainable

JCM

Verified Emission Reductions (VERs) and Certified Emission Reductions (CERs) issued for tons of CO2 reduced, sold to

companies worldwide.

Leveraging Carbon Markets

Easing Eco Microloans• Extending the possible tenor and

reducing the interest rate• Creating a guarantee fund to act

as collateral for the poorest clients

Easing Eco SME Loans• Extending the tenor and reducing

the interest rate

Continuing the Eco Product Program• Allow expansion of the program

and inclusion of new products

CER & VER Revenue

Reductions of CO2 Correspond with Revenue for Eco Programs

Estimated 2,000,000 tons CO2E offset by 2019

Identifying Future OpportunityLinking New Carbon Market Mechanisms to Facilitate Project Implementation

Joint Crediting Mechanism (JCM)• Japanese emission caps will come in the next few years• Current incentive comes from Japanese organizations – GEC, NEDO, JICA• 50% Project Cost subsidy from MOEJ and GEC for approved projects• Credits will be split between Japanese company and Mongolian partner, but the

benefits of CO2 reduction will be in Mongolia• XacBank can capitalize on extensive carbon finance experience when it comes to JCM

project implementation in Mongolia• Financial mechanisms for JCM make energy efficiency and renewable energy projects

more bankable in Mongolia

Nexus Ulaanbaatar TTR ProjectLooking to Thermo-technically Retrofit Existing Precast Panel Apartments

UB TTR Project InvolvementUsing Existing Strengths and Experience in the Nexus Ulaanbaatar TTR Project

• Microloans for apartment owners who wish to put down a down payment or fully pay the TTR upfront

• Provide working capital finance for construction companies

• Develop JCM project documents in concert with Japanese partners

• Monitor heat meters post-retrofit and maintain data using Tracker software

• Provide education and capacity building to increase awareness of TTR benefits

• Reviewed existing reports and studies to estimate cost of retrofitting all precast panel apartments in UB

• Analyzed existing funding sources, repayment sources, and structures for carbon mitigation

• Drew on knowledge of carbon markets to evaluate suitability of new market mechanisms and develop new structures

• Defined and elaborated potential financial structures by which the UB TTR project can be implemented

Developing Financial Structures Potential Future Involvement

Thank you!