A financial incentive to reduce livestock numbers and improve quality — on both the herder and processor side of the transaction
This component has two halves. The herder-side loan has been piloted and tested, with results reported below. The processor-side loan has not yet been tested — it is a proposed extension of the same financing logic, described using proposal language throughout.
Herders keep expanding herd size because they fear that selling animals will cut their income — even though larger herds mean lower productivity per animal and greater exposure to dzud and drought. The missing piece is a real economic incentive to actually sell animals and reduce numbers. Ordinary commercial credit doesn't supply this: interest rates are too high, and no conventional loan product ties financing to a herd-reduction commitment.
This is the financing gap that sits underneath all four other components: PUA sets the pasture-carrying-capacity ceiling, but a herder still needs a reason and the capital to actually sell down to it. Green Loans supply both.
A below-market loan that herders receive in exchange for a contractual commitment to reduce their herd by a set share each year — 6% in the original Bayan-Ovoo pilot, 5% in the protected area buffer-zone scale-up. At least 60% of each loan must be invested in income-raising activities: improving animal quality and breeding stock, preparing fodder and hay, or repairing shelters.
| Indicator | Target | Achieved | Performance |
|---|---|---|---|
| Households under PUA | 45 | 114 | 218% |
| Herd reduction (SU) | 6% | 16.2% | 270% |
| Loan repayment rate | — | 98.8% | Very high |
| Indicator | Project | Comparison |
|---|---|---|
| Share of herd sold | 28.7% | 16.1% |
| Herd reduction (SU) | −16.2% | −3.6% |
| Avg. HH meat-sales income | ₮29.3M | ₮20.4M |
| Income per SU | ₮44.2K | ₮30.8K (+43.5%) |
Under a project financed by Germany's KfW Development Bank, the model's buffer-zone revolving credit fund extended to five soums across three aimags. Borrowers reduced herds by 12.4% (sheep-units) while total herd numbers across those same soums rose 2.1–7.2% — direct evidence that borrowers cut numbers against the prevailing trend, not with it.
This is a proposed addition to the verification approach used in the pilots — it has not yet been implemented or tested.
What the pilots verified: herd size reduced by 5% from the previous year's census, and the reduction occurred through livestock sales — not transfer to another herder. Together, these close the additionality and leakage gap for pilot results, but the underlying NSO census is a single annual snapshot based largely on oral reporting.
The proposed upgrade: a birth-to-death animal registry, combined with herder smartphone app reporting to a soum-level database, providing continuous, year-round verification.
This half of the model has not yet been piloted; it is designed as the demand-side counterpart to the herder-side loan, described here as a proposal.
A soft working-capital loan for meat and cashmere processors, subsidized down from a market rate of roughly 17% to around 12% — required to be used specifically to purchase raw materials at Single-Point sites from herders meeting their reduction targets. In exchange, processors would offer an 8% quality premium on top of local market prices.