OFFICIAL USE

TERMs OF REFERENCE

ETC SME LOCAL CURRENCY (LCY) PROGRAMME TECHNICAL COOPERATION FRAMEWORK

Money and Capital Markets Development Strategy for Mongolia

  1. BACKGROUND

The Early Transition Countries (ETCs) SME Local Currency Programme Technical Cooperation (TC) Framework (the Framework) is being implemented by the European Bank for Reconstruction and Development (EBRD or the Bank) within its key Local Currency and Capital Markets Development (LC2) Initiative and funded by the Japan-EBRD Cooperation Fund. The Framework supports necessary money market and capital market reforms to 1) make ETCs more resilient, 2) develop access to alternative sources in local currency for the domestic market participants, and 3) facilitate local currency funding by the EBRD and others in ETCs under the EBRD’s SME Local CurrencyProgramme (LCYP).

The money and capital markets in Mongolia are still underdeveloped. Although Mongolian policy makers recently implemented several measures to develop local money and capital markets, challenges still remain in the money and capital markets overall. Interbank money market transactions are very limited, while the Mongolian banking sector dominates the financial system with more than 95% of total assets. There is no corporate bond market in Mongolia and the equity market today is a relatively limited trading venue for few shares and does not play a significant role in providing financing to the broadeconomy. The Mongolian financial market also lacks long-term financing sources, as there are no substantial institutional investors, such as life insurance providers and pension funds, which can invest in long term financial products.

In the efforts to overcome the overall economic and financial difficulties faced in Mongolia and to stabilise the economy, the Economic Recovery Programme was created as part of the Action Plan of the Government 2016-2020 and approved by the Cabinet on the 28th of December 2016. The Ministry of Finance of Mongolia (MoF) is mandated to develop a Financial Sector Strategy 2025, which will include a road map plan for creating an active secondary market of government securities and improving money market and capital market infrastructure.

Thus, the EBRD wishes to engage a consulting firm (the Consultant), under the SME LCY Programme Framework[1], to support the MoF to develop a money and capital markets strategy that will form part of the Financial Sector Strategy 2025 and to propose the necessary capacity building programmes for policy makers and market participants.

  1. OBJECTIVE

The objective of this assignment is to assist the MoF, in its money market and capital market development efforts by

  1. Identifying barriers to money market and capital market development in Mongolia.
  2. Identifying improvement levers and providing recommendations.
  3. Providing a comprehensive implementation roadmap for the identified measures and recommendations.
  4. Designing the necessary capacity building programmes for policy makers and market participants to achieve the milestones that are defined in the implementation roadmap.
  1. SCOPE OF SERVICES

In order to achieve the objectives as outlined above, theConsultant will be required to, in consultation with the EBRD and relevant market participants, such as, but not limited to, the MoF, Bank of Mongolia (BOM), Mongolian Stock Exchange (MSE), Central Securities Depository (CSD), Commercial Clearing House (CCH), Mongolian Financial Regulatory Commission (FRC), carry out following activities:

  • Activity 1: Identifying barriers to money market and capital market development in Mongolia.
  • Activity 2: Identifying improvement levers and provision of recommendations.
  • Activity 3: Drafting an implementation roadmap.
  • Activity 4: Designing the necessary capacity building programmes for policy makers and market participants to achieve the milestones that are defined in theimplementation roadmap.
  • Activity 5: Organising the final workshop to present the findings and proposed implementation roadmap to the stakeholders.

Activity 1: Identifying barriers to money market and capital market development in Mongolia

The aim of the Activity 1 is to conduct an assessment and identify the barriers that prevent the development of the money market and capital market.

The Consultant will carry out the following tasks:

(a)Carry out a diagnostic review of money and capital markets in Mongolia. The Consultant will analyse the current money market and capital market environments in Mongolia, and identify the impediments that limit their development;

(b)Assess access to money and capital markets for local investors, including institutional and retail, and foreign investors;

(c)Analyse the products and services offered by money market and capital market infrastructure institutions (the BOM, CSD, CCH and MSE) and money market and capital market participants, including banks, brokers, custodians, the regulator, and asset managers, including pension funds, private equity and venture capital funds, if any;

(d)Besides listed instruments, the analysis should cover private placement, direct lending and private equity, in particular as an access to financing for small and medium enterprises (SMEs);

(e)Conduct desk research as well as interviews with market participants; an interview list should be agreed with the MoF and the EBRD;

(f)Identify the barriers to further development; and

(g)Prepare a report called “Report on Barriers” summarising the findings and outcomes of the Activity 1 review process.

The final Activity 1 assessment and the identified gaps will form part of the final report.

Activity 2: Identifyingimprovement levers and provision of recommendations

Based on the findings of Activity 1, industry trends and the Consultant’s money market and capital market expertise, the Consultant will identify improvement levers and provide recommendations for the development of money and capital markets in Mongolia. The Consultant will provide the rationale, justifications and a clear set of arguments for each retained specific solution. Whenever possible and reasonable, the Consultant will rely on international best practices related to money and capital markets development to back their position and describe the retained solution’s expected impact on the market and its participants. Recommendations will cover a capacity building and training needs assessment for market participants based on identified skills and knowledge gaps.

The findings should be presented as a report titled “Recommendations and required actions for the further development of the Mongolian money and capital markets” (the Report on Recommendations and Actions). The indicative structure of the Report on Recommendations and Actions:

Section I: Introduction and executive summary

Section II: Legal and regulatory reforms

Section III: Money and capital markets infrastructure reforms

Section IV: Buy-side measures

Section V: Sell-side measures

Section VI: Corporate governance reforms

Section VII: Capacity buildingand training programmes

Section VIII:Annexes

The Consultant will carry out the following tasks:

(a)Identify improvement levers and prepare recommendations and required actions. The Consultant will coordinate closely with the MoF, BOM, FRC, CSD, CCH, MSE, and other relevant key market participants on the recommendations and actions, with a view to (i) agree on the measures and steps to be taken, (ii) in each organisation and as relevant, identify the department to lead and be accountable for the implementation of the measures and (iii) agree on a tentative timeline for implementation;

(b)Prepare a set of presentation slides that help understand the retained recommendations and actions, and the impact of the recommended measures, which can be used by the MoF for follow up presentations to stakeholders (Slides on Recommendations and Actions);

(c)Conduct a workshop with the MoF and the participating stakeholders, to discuss the outcome of Activity 2 and to seek their validation on the relevant timelines and department/authority/institution in charge (Consensus Workshop);

(d)Prepare the Report on Recommendations and Actions.

It is expected that the result of Activity 2 will be a clear set of feasible and realistic recommendations – having in mind the development stage of the country within a timeframe of maximum 5 years.

Activity 3: Drafting an implementation roadmap

Based on the Report on Recommendations and Actions, the Consultant will prepare an implementation roadmap (Implementation Roadmap),where measures are divided into short-term actions with immediate impact, and medium-term actions to ensure sustainable development after the end of the TC Assignment,. The Implementation will be a comprehensive 5-year step-by-step action plan covering recommendations and required reforms described in the Activity 2.

The methodology should follow a top-down approach. The Implementation Roadmap will be phased and should be tailored to the specific needs of the Mongolian money and capital markets; the Consultant must pay close attention to timing and sequencing, factoring in priorities, time required and feasibility of implementation. In addition, the Consultant should take into account legal, financial and operational impediments, and recommended solutions for overcoming these and factor them into the Implementation Roadmap. The Implementation Roadmap should furthermore pay attention to the potential complexities that might arise from implementing each of the recommendations across different sectors, asset classes and investors.

The Consultant will carry out the following tasks:

(a)Prepare the Implementation Roadmap (i) on a consolidated basis and (ii) per stakeholder as a written document which outlines how and when the relevant measures are expected to be initiated (sequencing) and completed, and which department from amongst the stakeholders is in charge of each action;

(b)Prepare an Excel version of the Implementation Roadmap to show the sequencing of, and responsibilities for, activities that may be left with the MoF after the project to help them to track the actions as the Implementation Roadmap is put into practice.

Activity 4: Designing the necessary capacity building programmes for policy makers and market participants to achieve the milestones that are defined in the Implementation Roadmap.

The Consultant will carry out the following tasks:

(a)Prepare a training needs assessment (TNA) that identifies the immediate and medium-term capacity building needs of the MOF and market participants to achieve the milestones set in the Implementation Roadmap.

(b)Based on the TNA, design the necessary capacity building programmes with the details of the training topics, schedule and audience.

Activity 5: Organising the final workshop to present the findings and proposed Implementation Roadmap to the stakeholders.

The Consultant will carry out the following tasks:

(a)Organise a roundtable (Conclusion Roundtable) with stakeholders to present the results of the assignment, and for a final validation if required, that includes the timelines and responsibilities. The roundtable shall be open to all market participants.

(b)Prepare slides presenting the findings of the assignment and the Implementation Roadmap, which can be also used by the MoF for follow up presentations with other stakeholders (Slides on the Final Report).

  1. IMPLEMENTATION ARRANGEMENT

1)The Consultant will be contracted by EBRD and project oversight will be provided by EBRD’s Operation Leader (OL). The Consultant will report directly to EBRD and will work closely with the OL. The Consultant will have overall responsibility for delivering the assignment according to the agreed work plan and will, as such, manage the project implementation and actively monitor the progress achieved. The Consultant shall carry out the tasks stated herein through coordination and management provided by the EBRD’s OL and any other person explicitly authorised by the OL.

2)The MoF will nominate a project manager who will work with the Consultanton a day-to-day basis. The MoF will provide the Consultant with available information duringthe assignmentimplementation. The Consultant together with the MoF will organise a workshop under Activity 5.

3)The Consultant will nominate a Consultant Team Leader (CTL), who will manage the project for the Consultant, monitor the quality of the work produced and have overall responsibility for delivering the assignment in accordance with the agreed work plan. The CTL is furthermore responsible for communication between the MoF, the EBRD and the Consultant; the MoF and the Consultant are expected to cooperate closely, while the Consultant should also liaise regularly with the OL.

4)The project will take place both in-country and off-site, and the Consultant will be required to have the necessary administrative capacity for the implementation of this assignment. The Consultant should not expect that the EBRD will provide logistical support and, therefore, the Consultant should provide their own office, communications, interpretation/translation, and other assignment-related logistical support.

5)The duration of the Assignment is 6 months.

  1. REPORTS AND DELIVERABLES

The Consultant shall deliver all tasks set out in Section 3. SCOPE OF SERVICES of thisTerms of Reference.

All deliverables should be in English and must be satisfactory to EBRD. All deliverables will be produced in hard copies and electronic format as requested by EBRD. The disbursement of payment will be contingent upon all deliverables being satisfied.

# / Deliverable(s) / Timing
Inception report
1 / The inception report will include an overview of tasks, time allocations, expected timelines and intermediate deliverables. / To be delivered within 2 weeks of project start.
Activity 1: Identifying barriers to money market and capital market development in Mongolia (estimated input of 60 man days including two site visits)
2 / Prepare the Report on Barriers and organise a kick-off workshop. / To be delivered within 8 weeks of project start and to form part of the final report.
Activity 2: Identifying improvement levers and provision of recommendations (estimated input of 45 man days days)
3 / Prepare the Report and Slides on Recommendations and Actions and organise the Consensus Workshop. / To be delivered within 16 weeks of project start and to form part of the final report.
Activity 3: Drafting an implementation roadmap (estimated input of 30 man days)
4 / Prepare the Implementation Roadmap. / To be delivered within 20 weeks of project start and to form part of the final report.
Activity 4: Designing the necessary capacity building programmes (estimated input of 15 man days)
5 / Propose the necessary capacity building programmes for MOF and other market participants / To be delivered within 22 weeks of project start and to form part of the final report.
Activity 5: Organising the final workshop to present the findings and proposed implementation roadmap to the stakeholders. (estimated input of 8 man days including a site visit)
6 / Organise the final workshop and the Conclusion Roundtable. / The timing will be pre-agreed with the MoF and EBRD.
Consolidated Final Report
7 / Prepare the Final Report (covering activities 1-4) and the Slides on the Final Report. / The Final Report should be a consolidated report covering all deliverables that have reflected all comments and feedback from the EBRD and should be submitted within6 months after the assignment starts.
  1. DONOR VISIBILITY

Japan has generously contributed, via the Japan-EBRD Cooperation Fund, to the SME LCY Fund to support Technical Cooperation (TC) programmes in ETCs to deliver the SME LCY Programme. The Consultant will be required to ensure the visibility of the Donor. Support on these visibility aspects can be obtained from the Bank’s Communications Department.

Measures could include but are not be limited to:

  • All documents produced by the Consultant should mention donor support and bear the logo of the donor, when appropriate;
  • Donor support to the project should be acknowledged in any public communication (press releases, launch of facilities);
  • Local representatives of donors should be invited to any public event organised to promote the project (press conferences, inaugurations, possibly stakeholder participation programs).

Some donor visibility guidelines will also be provided by the Bank to the Consultant at the start of theAssignment, if required.

  1. CONSULTANT PROFILE

Corporate services are sought: the Consultant will be a firm or a consortium of firms specialised in money market and capital market development. The company must have a proven track record working with market participants and authorities on similar consulting assignments. The Consultant will form a project team of experts to carry out the assignment. The provided expertise should cover all areas as defined in the scope of work. The Consultant may associate to enhance their qualifications.

As a minimum, the Consultant’s team of key experts shall consist of:

  1. The Consultant Team Leader and money and capital markets expert

-Preferably more than 10 years of consultancy experience in the field of money and capital markets development;

-Preferably more than five years of project management experience including acting as team leader on similar assignments;

-Excellent knowledge of international standards related to / impacting the money and capital markets;

-Experience working on a minimum of five similar projects in both emerging and developed countries;

-Excellent proficiency in written and spoken English

  1. Money and capital markets infrastructure expert

-Preferably more than 5 years of consultancy experience in the field of securities, money markets, derivatives or structured finance with focus on money and capital markets development;

-Good understanding of the role and IT functionalities of money market and capital market institutions such as; exchanges, central securities depositories, clearing houses, payment systems and settlement banks. Experience in trading, clearing and settlement is a plus;

-Proven track record of working with market participants and authorities on similar consultancy assignments;

-High proficiency in written and spoken English.

  1. Legal and regulatory expert:

-Preferably more than 5 years of experience as a legal and regulatory expert with focus on money and capital markets development;