The 'B++' rating indicates that the State Business Support Fund of Kaluga region qualifies as a sufficiently reliable borrower. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant.

The microfinance institution's rating reflects the conformity of its certain performance metrics to regulatory requirements and the ability to meet its payment obligations to creditors.

In 2014, quite a number of the Fund's performance metrics were acceptable for rating purposes. As of January 1, 2015, the MFI lending efficiency was estimated at 85.68% (the recommended level being at least 80%). In 2014, this ratio increased by 16.3 p.p. compared with 2013. The growth is attributable to a reduction in the amount earmarked for microfinance activities, combined with a microloan portfolio expansion. The share of operating expenses in the average loan portfolio as of the last reporting date was 3.3% (against the maximum regulatory percentage of 30%).

In the face of the growing number of applications for financing and the amount of loans provided, the Fund has had to borrow capital since 2012. As of December 31, 2014, the Fund's debt on bank loans decreased by RUB 22.24 million compared with the start of 2014 to RUB 88.25 million. Given the positive loan repayment trend and the absence of overdue debt, the Fund's ability to meet its payment obligations is virtually beyond doubt. In addition, the debt load reduction in 2014 improved certain microfinance performance indicators. In particular, equity capital adequacy increased by almost 3 p.p. to 62.62% as of September 30, 2014 (the minimum percentage being 15%).

At the same time, the low operational sustainability and the high portfolio-at-risk (PAR) ratio are putting pressure on the microfinance institution's rating.

The Fund's earnings have been growing every year. In 2014, its financial income totaled RUB 14.06 million, i.e. 53.3% above the 2013 level. However, the Fund's expenses have been soaring even faster since 2013 (66.5% in 2014) due to the growing team of employees evaluating risks attributable to microloans and dealing with problem borrowers, and higher debt service expenses. The Fund's operational sustainability decreased by 6.8 p.p. to 79.6% at the start of 2015, which does not meet the applicable minimum regulatory level set by Russia's Ministry of Economic Development.

Since the start of the year, arrears on the effective loans and microloans provided by the Fund increased to 12.7%. As of January 1, 2015, the portfolio-at-risk (PAR) in terms of the Ministry of Economic Development's standards was 15.2%, exceeding the maximum regulatory percentage. This negative driver is partially offset by the Fund's efforts to recover the overdue debt through applicable legal actions; most of the arrears on loans and microloans are currently being repaid.

The State Business Support Fund of Kaluga region was registered in June 1995, registered in the state microfinance institution register on May 29, 2012.

The fund is a non-profit organization established for the development and assistance to small and medium-sized businesses in Kaluga region. Its sole founder is the Government of Kaluga region.

This press release is based on the Statement of assignment of a credit rating to the State Business Support Fund of Kaluga region.

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Fund's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC Analysis, Consulting and Marketing Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

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