The 'B++' rating indicates that the State Business Support Fund of Kaluga region qualifies as a sufficiently reliable microfinance institution. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. October 12, 2015.

The tier was largely lowered due to deterioration in assets of the microfinance institution. In particular, the amount of overdue debt increased by 74% in 2015 approaching RUB 53 million and accounting for 35% of the Fund's microloan and loan portfolio, resulting from weakened solvency of clients and the Fund's less efficient risk management system.

The biggest growth of overdue debt was in the segment of loans and microloans with payment delays of 30 to 360 days, which increased the Fund's portfolio-at-risk (PAR) ratio from 15% as of January 1, 2015 to 30% on January 1, 2016 (the maximum level set by the Ministry of Economic Development being 12%).

As an offsetting factor, we note the Fund's vigorous efforts to dispose of the property securing the loans and microloans. A register of such assets for a total amount of RUB 36 million is published on the Fund's official website. If the Fund succeeds in disposing of these assets, the above amount (adjusted for a discount in the deal-making process) will cover 64% of the amount of loans and microloans with payment delays exceeding 30 days.

The rating remains supported by the Fund's easier debt burden, good operational sustainability and an acceptable lending efficiency ratio.

In 2015, the Fund's debt load decreased by 43% to just over RUB 50 million. All borrowings were made in 2013 for the purpose of providing financial assistance to SME businesses of Kaluga region. The fund has no delays in loan payments; as of October 1, 2015, its financial resources exceed the amount of scheduled debt servicing payments over the next 18 months more than twice.

The lower credit obligations reduced the Fund's financial expenditure by 34% in 2015; as a result, its operational sustainability was fairly high exceeding 113%.

Despite a reduction in the amount of existing microloans, the management team of the State Business Support Fund of Kaluga region keeps lending efficiency within acceptable limits. As of January 1, 2016, the Fund's lending efficiency ratio was approximately 81%, fully meeting the regulatory requirements (the minimum level being 70% after one year in operation).

Full Company name: State Business Support Fund of Kaluga region (microfinance institution)

Short Company name: SBSFK (MFI)

The State Business Support Fund of Kaluga region (MFI) was established in 1995 as an entity affiliated with the Government of Kaluga region for small and medium-sized business development and assistance purposes. The Fund has been providing loans and microloans to SME businesses since April 29, 2009. The Fund was registered in the state microfinance institution register on May 29, 2012. For the whole period of microfinance activities, SBSFK (MFI) concluded 343 microloan contracts for a total amount of RUB 388 million.

AK&M Rating Agency assigned a credit rating to the State Business Support Fund of Kaluga region (microfinance institution) for the first time on February 11, 2014. The last rating action in relation to the Bank was taken on February 9, 2015. All rating action announcements are available on the akmrating.ru website.

For estimation purposes, we completely rely on the reliability of information provided by the Fund. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.

This press release is based on the Statement of assignment of a microfinance institution rating to the State Business Support Fund of Kaluga region (microfinance institution) and the Credit Rating Methodology for Microfinance Institutions rev. October 12, 2015.

The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion 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.

AK&M 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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