The 'A+' rating indicates that the Foundation of the Corporation for enterprise development of Ulyanovsk region qualifies as a highly creditworthy microfinance organization. The risk of a failure to meet obligations in time is low.

The higher rating sub-level reflects the microfinance institution's growing capitalization, growing support of small and medium-sized businesses in the region, high security for the microloans provided by the MFI, higher operational sustainability and operating efficiency improvements, as well as strong risk management.

In 2015, the Fund received a total of RUB 43.8 million in subsidies (RUB 36 million from the federal budget, RUB 7.8 million from the regional budget). As a result, its capitalization increased by 27.3%, which enabled the Fund to expand its credit support to small and medium-sized businesses in the region. In 2015, the Fund provided loans for a total amount of RUB 224.1 million (7.4% more than in 2014). In 2015, the Fund's existing microloan portfolio increased by 14.4% from RUB 139.4 million to RUB 159.4 million.

For the 9-month period in 2016, the Fund received another RUB 5.6 million in subsidies from the regional budget. For the three quarters of 2016, the Fund provided loans for a total amount of RUB 252.1 million (12.5% above the result achieved for the whole year 2015). As a result, in January-September 2016, the Fund increased the existing microloan portfolio from RUB 159.4 million to RUB 230.1 million (+44.3%). Both the Fund's capital and the credit support to SME businesses have seen the highest growth in the last 3 years of the microfinance institution's operation.

The MFI lending efficiency increased considerably from the minimum acceptable level at the end of 2015 to almost 99% in early October 2016.

The simultaneous growth of the Fund's capital and the credit support to SME businesses is one of the key positive rating drivers.

We appreciate the high level of security for the loans provided by the Fund exceeding the amount of existing microloans almost 5 times. This substantially mitigates the risk of irrecoverable loss of money should clients default on their obligations.

From just above 102% in 2013-2014, the Fund's operational sustainability grew to 110.7% in 2015 and further increased to 127.7% for the 9-month period in 2016. He higher operational sustainability makes a positive contribution to the microfinance institution's rating.

In the same period, the Fund improved its operating efficienc from 14.2% in 2013 to 12.6% in 2014, 10.5% in 2015 and 2.2% in January-September 2016, while the maximum acceptable value is 30%. The lower ratio of operating expenses to the existing microloan portfolio can be regarded as a positive signal for the microfinance institution's rating.

In the first three quarter of 2016, the Fund's portfolio-at-risk (PAR) ratio decreased from 9.6% to 5.7%, an evidence of risk management improvements.

The write-off ratio also improved from 0.09% in 2014 to 0.08% in 2015 and further decreased to 0.05% in January-September 2016, by two orders of magnitude below the upper acceptable threshold (5%).

As of October 1, 2016, the share of restructured loans was about 1%, which is substantially below the maximum acceptable value set by the regulatory authority (10%). Also, the Fund had no bad loans at the beginning of the fourth quarter.

The Fund's rating remains constrained by growing overdue debt and its impaired structure, losses from operations.

As of October 1, 2016, the percentage of overdue loans in the Fund's loan portfolio reached 11.1%. Furthermore, loans with delays exceeding one year accounted for 39.5% of the total overdue debt.

In 2015, the Fund's net losses from operations amounted to RUB 459 thousand, with no visible improvements this year. Despite the profit earned in the third quarter, the 9-month net loss of the Fund reached RUB 702 thousand. As a result, the Fund's return on assets and equity ratios were below zero in 2015 and in January-September 2016.

The Foundation of the Corporation for enterprise development of Ulyanovsk region of the Ministry of Economic Development of Ulyanovsk region was established in 2010 to provide financial support to small and medium-sized businesses using microfinancing schemes. The entity was registered as a microfinance institution on July 8, 2011. The Fund has a mature branch network in the territory of Ulyanovsk region (Dimitrovgrad and Inza cities, Novospassky, Barysh and Staraya Kulatka and Surskoye industrial communities).

In the period from 2011 to October 1, 2016, the Fund concluded more than 1,000 microloan contracts for a total amount of ca. RUB 1 billion.

AK&M Rating Agency assigned a credit rating to the Stavropol regional Microfinance Fund for small and medium business for the first time on December 8, 2015. The last rating action was taken on December 8, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until December 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 organization. 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 the Stavropol regional Microfinance Fund for small and medium business and the Credit Rating Methodology for Microfinance Institutions rev. October 12, 2015.

AK&M Rating Agency assigned a credit rating to the Foundation of the Corporation for enterprise development of Ulyanovsk region.

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.

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