The 'B+' rating indicates that Business Partner Fund is a sufficiently creditworthy microfinance organization, with a low degree of full or partial debt restructuring risk. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

The positive rating drivers for Business Partner Fund include high equity capital adequacy and operating efficiency ratios, satisfactory concentration of credit risk on borrowers, a conservative loan provisioning policy.

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%). In the period under review, the share of operating expenses in the average loan portfolio did not exceed 8% (the upper limit set by the regulatory authority being 30%) and was 6.6% July 1, 2016.

It should be noted that the average loan amount did not exceed the upper regulatory limit of RUB 700,000 in the period under review. As of the last reporting date, the average loan amount was RUB 431.3 thousand.

The fund pursues a conservative loan provisioning policy. As of July 1, 2016, the amount of security for the existing portfolio of loans was RUB 30.7 million exceeding the amount of existing microloans">microloans more than twice.

At the same time, we regard a deterioration of assets, weaker operational sustainability and lower lending efficiency as risk factors.

The amount of loans in arrears soared more than 4 times for the 6-month period in 2016 from RUB 713 thousand on January 1, 2016 to RUB 3.3 million on July 1, 2016. This produced a negative impact on the portfolio-at-risk (PAR) ratio (in terms of the Ministry of Economic Development of Russia's Order 167 as of March 25, 2015) which reached 13.5% exceeding the maximum acceptable limit of 12%. However, on August 18, 2016, overdue debts on 6 out of 10 loans were repaid, indicative the Fund's efficiency in recovering debts receivable on microloans">microloans.

Another point of concern in an increase of expenses against the background of weaker earnings, resulting in lower operational sustainability. In particular, in the first half of 2016, the Fund's incomes decreased by 19.5% while expenses increased by 35.8%. As a result, the operational sustainability ratio dropped by 84 p.p. to 123%, although sill meeting the Ministry of Economic Development's requirements (at least 100%).

The microloan portfolio contraction is also putting pressure on the rating. As of the last reporting date, the amount of existing loans was RUB 12.4 million decreasing by 17.2% against the same moment in 2015. Accordingly, the Fund's lending efficiency dropped from 88.2% to 72.9%, now approaching the minimum admissible value of 70%.

Full Fund name: The Upper Kama small business assistance fund Business Partner.

Short name: Business Partner Fund.

The Upper Kama small business assistance fund Business Partner has been engaged in microfinance operations since 2013. The Fund was co-founded by the Kirov regional SME support fund, the government of Verkhnekamsky district, Leonid Anatolyevich Kibardin (director of Energetik LLC), Alexey Alexandrovich Oskolkov (sole proprietor). The Fund was included in the State Register of Microfinance Institutions under no. 401303333004206 as of October 31, 2013. Over the period of operation as a microfinance organization, the Fund has concluded 82 microloan contracts for a total amount of RUB 34.9 million.

AK&M Rating Agency assigned a credit rating to Business Partner Fund for the first time on June 18, 2014. The last rating action in relation to the Fund was taken on July 15, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until August 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the microfinance organization'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 Business Partner Fund and the Credit Rating Methodology for Microfinance Institutions rev. February 10, 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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