Khan Bank’s Green Finance Model for Sustainable Cashmere in Mongolia
Khan Bank is demonstrating how green finance can support climate adaptation, strengthen rural livelihoods, and improve sustainability in one of Mongolia’s key export sectors. Through a targeted financing model for certified herder cooperatives, the bank is helping build a more sustainable cashmere value chain while addressing land degradation and climate risks.
The Challenge
Mongolia is highly vulnerable to climate change, facing rising temperatures, extreme weather events, and land degradation. In the cashmere sector—one of the country’s key industries and a major contributor to exports—these pressures are reinforced by a feedback loop between herd growth and land degradation. Rising goat populations contribute to overgrazing, exceeding the carrying capacity of rangelands and degrading pasture quality .
As pasture conditions decline, forage availability decreases, reducing fiber quality and herder incomes. With limited alternatives, herders often increase herd sizes, further intensifying pressure on already degraded land. Breaking this cycle requires solutions that support sustainable production while maintaining rural incomes.
Strategic Approach
In 2022, Khan Bank, Mongolia’s largest bank, with a strong rural footprint and a diversified portfolio of financial services for herders, launched a green loan program to support a more sustainable wool and cashmere supply chain. The program finances cooperatives and herders certified under the Sustainable Fibre Alliance and compliant with Mongolia’s Responsible Nomads Code of Practice. The SFA certification ensures ethical goat welfare, biodiversity conservation, responsible land use, fair labor practices, and enhanced fiber quality. By the end of 2024, the bank had financed approximately $3.2 million for 34 certified cooperatives, supporting the adoption of sustainability standards across the value chain.
Loans are structured around the sector’s cash flow cycle and secured against sales contracts between herder cooperatives and cashmere factories, reducing collateral constraints. The model also includes capacity building to support implementation across the value chain. By linking access to finance with sustainability standards and market contracts, the model shifts incentives from herd expansion toward higher-quality, more sustainable production.
Outcome and Impact
The program links sustainability standards with improved market access, supporting higher-value exports and more stable rural incomes. By 2024, it had supported 34 certified cooperatives, contributing to improved rangeland management and more sustainable herd practices. These changes help reduce pressure on degraded land and strengthen resilience to climate variability.
By supporting traceable supply chains, Khan Bank is helping position Mongolia within global sustainable fashion markets, including supply relationships with brands such as Burberry, Loro Piana, Falconeri, and Louis Vuitton Moët Hennessy (LVMH). The model also contributes to economic diversification in a mining-dependent economy.
Lessons Learned
Khan Bank’s experience shows that green finance is more effective when linked to clear sustainability standards and embedded across value chains. It also highlights the importance of tailoring financial products to sector realities, including aligning lending with seasonal cash flows and reducing collateral barriers. The case demonstrates how sector-specific green finance can support climate adaptation while contributing to economic diversification. The model also highlights its potential for replication across other sectors, including livestock, dairy, and agriculture.
Key links/documents
1. Khan Bank. Annual Report 2024
2. World Bank. 2024. Mongolia Country Climate and Development Report.
3. Sustainable Fibre Alliance. SFA Standards and Resources.