Recently, I spoke with Ms.Dorjbadam.M, who manufactures boots made from horsehide. She started her business in 2009 with four employees. Today, she has become a successful entrepreneur with her own products, customers, and market, providing steady jobs for eight people.
One distinctive feature of her business is that horsehide is not a raw material available in a steady supply throughout the year. Producers purchase and stockpile hides during the hide-processing season. That is precisely when they need cash. When they apply for a loan from commercial banks, they are often required to provide substantial collateral because their business is seasonal, submit extensive documentation, and wait for a decision. But business opportunities do not always wait.
Ms.Dorjbadam.M has recently found a different way to address this problem. She sends a statement from the bank account into which she receives her business income and obtains financing from LendMN when she needs it. She told me that she particularly appreciates the fact that the terms improve and the interest rate decreases as she uses the loan consistently and reliably, and that she can repay it early when she has sufficient cash.
Listening to her story raised a question in my mind: Is Dorjbadam’s problem simply the problem of one boot manufacturer, or is it a small illustration of a much larger problem within Mongolia’s financial system?
The money exists. But how to reach it?
The lifeblood of a business is financing. Even with a great idea, a good product, and a market, a business cannot grow without working capital. It cannot purchase raw materials, upgrade equipment, or hire new employees. This is particularly acute for small and medium-sized businesses.
Commercial banks occupy the central position in Mongolia’s financial system. Since banks take deposits from individuals and businesses and lend that money out, it is natural for them to be cautious about risk. They assess borrowers, verify their income, and require collateral. This is not the banks’ fault. Protecting depositors’ money is one of a bank’s fundamental responsibilities.
But this creates a gap. What happens to a profitable business owner who has little real estate to pledge as collateral? What about a business whose income is seasonal? What happens to a manufacturer who needs working capital today—not two months from now—because the raw materials have become available today?
It is precisely because this demand exists that non-bank financial institutions, or NBFIs, have emerged and grown. In terms of scale, this sector is no longer small. As of the second quarter of 2025, 573 NBFIs were operating in Mongolia, with total assets reaching MNT 8.0 trillion. By comparison, the total assets of Mongolia’s 12 commercial banks stood at MNT 72.3 trillion during the same period. In other words, the total assets of NBFIs had reached approximately 11 percent of the banking system’s assets.
Even more interestingly, total NBFI assets had nearly doubled in just two years, rising from MNT 3.9 trillion in the second quarter of 2023.
This growth tells us something important. There is considerable demand in Mongolia’s economy for financing that banks either cannot reach or that does not fit the conditions of traditional bank lending. NBFIs have not emerged to replace banks. Rather, they have been filling parts of the market that traditional banking services cannot fully reach. As technology develops, however, the way this gap is being filled is changing as well.
From Collateral to Data
One of the major problems with traditional lending is information asymmetry. The person seeking a loan knows their own business well. The financial institution providing the money, however, knows much less about that business. For many years, collateral has therefore been used to reduce this unknown risk.
The digital economy is beginning to change that.
Today, the transactions in a business bank account themselves provide valuable information. How much revenue is coming in? Is that income stable? How long has the business been operating? How has the borrower repaid previous loans? What does the cash flow look like?
In other words, while collateral has traditionally been the main foundation of trust for banks, data is becoming a new foundation of trust in digital finance.
LendMN’s FlexiBusiness product is one example. The company introduced its unsecured digital business loan in 2024 and reports that, as of May 2026, it had provided financing to more than 12,000 business owners.
In the first quarter of 2026, business loans accounted for 43.3 percent of LendMN’s total loan portfolio, an increase of 17.3 percentage points from the same period a year earlier. This indicates, on the one hand, the growth of the company’s business lending and, on the other, the existence of strong demand for fast and accessible working-capital financing.
Why does speed matter?
Let us return to Ms.Dorjbadam’s example.
Imagine that the season for collecting horsehide has arrived. The raw materials are available. The price is attractive. The manufacturer is ready to purchase them. But she does not have enough cash.
If the financing arrives two months later, the loan may eventually be approved, but the business opportunity may already have disappeared.
For a small business, therefore, the cost of a loan matters—but the speed of the loan can be equally valuable.
According to LendMN’s product terms, its business loan eligibility is calculated based on the bank account statement where the borrower receives business income, allowing businesses to obtain financing of up to MNT 100 million without pledging collateral. Within an approved credit line, borrowers can also draw funds again when needed and pay interest only for the period during which the funds are used.
For businesses with larger financing needs, the FlexiBusiness solution is accepting financing requests of up to MNT 1 billion, further expanding the range of business financing offered by the company.
But one thing should not be forgotten: fast money is not free money.
The cost of financing from NBFIs is generally higher than that of bank loans. LendMN’s currently advertised business loans of up to MNT 100 million carry monthly interest rates ranging from 3.99 to 4.50 percent, depending on the product.
Therefore, entrepreneurs should evaluate the speed and accessibility of financing not simply by looking at the monthly interest rate, but also by considering what return that money can generate for their business.
Taking a loan to grow a business is one thing. Taking a loan to repay an earlier loan is another.
As financial access expands, financial discipline must expand with it.
Bank or NBFI?
In reality, framing the question this way is itself misguided.
Mongolia’s economy needs both banks and NBFIs. Going forward, it will also increasingly need diverse forms of financing, including fintech, capital markets, venture capital, factoring, and leasing.
The fundamental advantage of a competitive economy is that it does not try to force everyone through the same door.
A large industrial company may be better suited to long-term bank financing. A startup may need an investor. A small manufacturer with seasonal working-capital needs, like Dorjbadam, may be better served by a fast and flexible credit line.
Most importantly, entrepreneurs need choices.
Competition in the financial sector is not simply about having many banks and many NBFIs. It is about giving customers the ability to choose among different types of financing that best fit their needs.
This also makes the role of government clear. The government should build and maintain the roads to financing; it should not decide who gets to borrow.
The government should ensure reliable digital identification systems, high-quality credit information databases, secure data-sharing infrastructure, enforceable contracts, consumer protection, and fair competition between banks and NBFIs.
As data improves, financial institutions can assess risk more accurately. As risk is assessed more accurately, the cost of financing for good borrowers can potentially decline.
That is how people who have little collateral but run good businesses can avoid being excluded from the financial system.
From Four to Eight
Dorjbadam started her business in 2009 with four people.
Today, eight people work there.
Four new jobs.
In macroeconomic statistics, four is almost invisible. But for four families, those jobs mean stable income. School fees. Food. Housing. A future.
There are thousands of small businesses in Mongolia like Dorjbadam’s that could create four, five, or ten new jobs.
If 10,000 small businesses each created four new jobs, that would mean 40,000 jobs.
Economic diversification does not necessarily mean building one giant factory. It can also mean helping thousands of small businesses grow, one step at a time.
No one needs to teach these entrepreneurs how to run a business.
Dorjbadam has been running hers for 17 years. She does not need a government program to turn her into an entrepreneur.
What she needs is working capital at precisely the moment the horsehide becomes available.
There are thousands of entrepreneurs like her in Mongolia.
What they need is not for someone to hand them money, but to open the path that allows them to reach financing.
For a small business, the most expensive thing is sometimes not money—it is the time spent waiting.
And the greatest asset is sometimes not real estate—it is the business history, cash flow, and trust built through years of hard work.
That is where the true value of digital finance’s transition from collateral to data lies.