The 'A' rating indicates that the microfinance institution 'Fund of development of small and average business of Vladimir region (FDSA)' qualifies as a highly creditworthy microfinance institution. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

The microfinance institution rating reflects a high equity capital adequacy ratio, high lending efficiency and operational efficiency, a satisfactory level of overdue debt, an effective system of risk management and recovery of debts receivable.

We appreciate the Fund's ability to comply with regulatory requirements as regards the key performance indicators. In particular, its equity capital adequacy ratio exceeds 100% (the required percentage being at least 15%).

The lending efficiency and operational efficiency ratios also meet the levels recommended by the regulatory authority. At the end of the first quarter of 2016, the current portfolio of microloans reached approximately 93.3% of the funds allocated for microlending purposes (above the minimum threshold of 70% set by Russia's Ministry of Economic Development), indicating the Fund's efficiency in investing the funds available. In the period under review, the share of operating expenses in the average loan portfolio has never exceeded 5.2% (the upper limit set by the regulatory authority being 30%) and was a mere 3.4% on April 1, 2016.

The portfolio-at-risk (PAR) ratio (in terms of the Ministry of Economic Development of Russia's Order 167 as of March 25, 2015) is 5.2%, despite a two-fold increase last year, far below the maximum acceptable percentage of 12%. The amount of overdue debt in the microloan portfolio of FDSA increased by 70.7%, which is better than the average overdue debt growth percentage in Vladimir region (91.7%).

The Fund's debtor register has a total of 15 SME businesses unable to timely and fully repay their obligations to the Fund (total arrearage reaching RUB 11.1 million). The Fund's recovery percentage reaches 65%, an evidence that the microfinance institution has developed a fairly effective risk management system, which makes a positive impact on the Fund's credit rating.

The Fund's rating is constrained by the write-off of bad debts, low operational sustainability and high concentration of credit risks within the pool of borrowers.

Last year, the microfinance institution posted a loan loss of RUB 4.0 million, resulting in a write-off ratio of 4%. In the first quarter of 2016, the Fund wrote off another RUB 1.0 million in loans, which drove up the write-off ratio to 5%, the maximum threshold recommended by the regulatory authority.

The losses on loans increased the Fund's aggregate expenses by 30.8% in 2015, while its financial income decreased by 19.4%. In the first quarter of 2016, the negative trend persisted: expenses increased 2.3 times, while incomes shrank by 19.2%. As a result, the operational sustainability ratio decreased to 64% and does not meet the Ministry of Economic Development's requirements anymore.

It should also be noted that the average amount of loan exceeded the maximum limit of RUB 700,000 (set by the regulatory authority) in the period under review. As of the last reporting date (April 1, 2016) the average loan amount was RUB 931.6 thousand, which means higher potential losses should the borrowers default on loan repayment obligations.

Full name: microfinance institution 'Fund of development of small and average business of Vladimir region'

Short name: FDSA.

The Fund of development of small and average business of Vladimir region (FDSA) was established in 2009 with the participation of the Business Development, Trade and Services department of Vladimir region to ensure and support favorable conditions for the operation and development of SME businesses in the region. For the whole period of microfinance activities, FDSA has concluded 657 microloan agreements for a total amount of RUB 583.8 million.

AK&M Rating Agency has assigned a credit rating to the Fund of development of small and average business of Vladimir region for the first time. All rating action announcements are available on the akmrating.ru website.

The rating is valid until May 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the microfinance institution's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the microfinance institution. 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 credit rating to Fund of development of small and average business of Vladimir region and the Credit Rating Methodology for Microfinance Institutions rev. February 12, 2016.

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.

AK&M Rating Agency

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