Mongolia, October, 02 2019 - For Mongolian herders — independent by nature, trusting few beyond their own relatives — cooperatively-owned financial institutions are seen as the first step toward greater collaboration and pastureland management.

It was January, nearing the end of a typically harsh winter in Mongolia’s Uvurkhangai province, and Demchig Delgerjargal’s 200-odd goats, sheep, cows, and horses were looking thin. The winter pastures alone weren’t enough to feed his herd, and the time had come to buy hay. But he had long since spent the money from last year’s harvest of precious cashmere wool — his family’s primary but once-annual source of income — and this year’s harvest was still months away.

Every winter across the frozen Mongolian countryside, nomadic herders like Demchig face a choice: selling their animals one by one to get by, or borrowing informally from cashmere brokers, to whom they’ll later owe fiber.

Some herders try for more formal loans, but the terms are often severe: Mongolia has some of the highest interest rates in the world, and herders say they commonly pay 30%-35% annual interest on traditional bank loans — if they can get one in the first place.

But this year, Demchig had one more option for winter cash: He borrowed from a shared fund created by Herders United Power, a cooperative of which he and 850 others are members.

"I borrowed enough to buy hay for one month," he said. That loan, equivalent to about $200, was enough to get him through the winter. He paid 2% monthly interest — that’s 28% annual percentage rate — but the cooperative returned half that rate as a dividend into his savings, while the rest fed back into the shared fund. In both accounts, all that money will multiply, Demchig said, "like monetary livestock."

Later this year, this group’s shared fund will formalize into a savings and credit union — the newest of dozens of herder-owned financial institutions that leaders at the Mongolian Association of Pastureland User Groups say are cropping up across the country to help herders cut costs and build financial security. It’s a tool being used successfully around the world, including in many Asian post-Soviet nations.

For Mongolian herders — independent by nature, trusting few beyond their own relatives — these institutions are seen as the first step toward greater collaboration and pastureland management. Eventually, some local leaders believe they will entirely replace traditional banks on the steppe.

Working together

Livestock is a Mongolian herder’s most valuable asset. All over the country, herders are saddled with debt as a result of the winter loans, as few have any savings to speak of beyond the value of their animals. The traditional "five snouts" — horses, sheep, goats, camels, and cows or yak — procreate and provide fiber, meat, and milk, yet are also vulnerable to storms and starvation, both increasingly common as global temperatures rise.

Heavily influenced by Soviet Russia, the state owned most livestock until the 1991 collapse of the Soviet Union, after which Mongolia quickly transitioned to a capitalist market economy. State-owned industries were dismantled and so were the state-run systems herders had come to rely on: pasture management, and fiber and dairy collection. Suddenly, Mongolians also owned all their animals — and the risks and costs that came with them.

And those costs are increasing: Just a generation ago, most herding was done on horseback. Today, it’s often done by motorcycle. Cell phones, solar panels, trucks, and modern conveniences are ubiquitous.

Meanwhile, the effects of climate change — herders and scientists alike report hotter, drier summers and more erratic rainfall — are hitting the country harder than most. Temperatures here have risen at twice the global average, surpassing 2 degrees Celsius since 1940, according to the Ministry of Environment. And everywhere, due to climate shifts and overgrazing, the grassland is degraded and herders are stressed.

Researchers say that 70% of the country’s grasslands — one of the largest grass ecosystems on Earth — is degraded or permanently desertified.

All of this, said Jargalbaatar Lonjid, who heads an association of all cooperatives in the Uvurkhangai province, is why herders need to work together. "It will not be productive if you go alone," he said. "There will be better outcomes if we cooperate." But that’s not to say doing so is easy. In the beginning, herders often distrust each other, Jargalbaatar said, accusing leaders of stealing from the group or refusing to join unless they can be leaders themselves. Working together takes time.

One of the driving forces behind cooperative development in Mongolia is the Green Gold project, backed by the Swiss Agency for Development and Cooperation and implemented nationwide by the Mongolian Association of Pastureland User Groups. The project is among the most influential of several aiming to improve rangeland conditions through cooperative groups of herders.

"We needed to encourage people to work together when we created the pasture user groups, so we established common funds," said Gankhuyag Nyam-Ochir, director of the Mongolian Association of Pastureland User Groups, which supports 1,500 such groups nationwide.

Those funds were built to serve the 30-50 families in each user group, with each family contributing around $10 and the Green Gold project matching each contribution.

These common funds were initially meant for shared spending, such as to plant hay for the whole group in a reserve area, Gankhuyag said. But it didn’t take long for the money to run out. "So they started to borrow and return money to the common fund," he said, which allowed herders to borrow for more personal needs, such as medical expenses. "After that they started to charge interest," and the funds started growing.

They grew so much, in fact, that Gankhuyag’s office recommended that many such groups formalize their joint fund into the legal entity of a savings and credit union. In this way, these increasingly large funds could be protected from leadership transitions and offer expanded services — like savings accounts — to members.

Gankhuyag said that he hopes through these institutions, herders might learn financial discipline while also increasing their incomes and cooperating to protect other shared resources, including the grass. Nearly 30 savings and credit unions have formed among all the groups, Gankhuyag said, "and there are signs that these numbers will increase."

A model, and a hope for the future

In far western Mongolia, 5,000 herders in Bayan-Ulgii participate in a herders’ organization that includes an animal husbandry cooperative and a savings and credit union. Founded in 2005, the organization is seen by many as a model for this work. Its cooperative brings herders together to market and sells raw materials from their livestock; the overall organization works to protect common interests and pastureland; and the financial arm provides access to affordable loans as well as community wealth-building.

"Herders can’t go far on bank loans," said Ahai Turdikhan, who heads the organization. "A bank works to make its owners rich. But we will not be rich by the assets of our neighbors." Instead, he said, the cooperative credit union "works for the good of its own members."

In Uvurkhangai, leaders at Herders United Power are working hard to transition their shared fund to a savings and credit union by the end of the year. They’re determining what interest rates they’ll charge, educating members on the benefits of the transition, and hoping to attract even more members. It helps, said director Altantsetseg Khuvtsagaan, that the shared fund has delivered dividends to herders.

"Herders who have received profit say good things about us," Altantsetseg said. She believes others will do the same — and hopefully save and invest more — when they see their own dividends. The most recent dividend was about $2 — significant for that $10 initial investment.

Given the successes she has seen in other places, the overall benefits of cooperatively-owned financial institutions, as well as the momentum she feels in Uvurkhangai, Altantsetseg is confident that someday herder-owned credit unions will displace traditional banks in rural communities across Mongolia.

"It takes a lot of work and time," she said, "but there is a great future."