The 'A' rating indicates that the Microcredit Company State Fund for Support of Entrepreneurship of the Kemerovo Region qualifies as a highly creditworthy microfinance organization. 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 lower sub-level reflects a deterioration in the microloan portfolio (a substantial increase in the percentage of microloans with payment delays exceeding 30 days), a reduction in the amount of microloans provided by the Fund, and lower lending efficiency.

Since our previous review, the share of microloans provided by the Fund with payment delays exceeding 30 days increased almost twice from 5.7% to 10.6% as of July 1, 2017, much closer to the maximum acceptable portfolio-at-risk (PAR) >30 days ratio (12%). Besides, the total amount of overdue loans in the period under review increased from RUB 15.3 million to RUB 17.3 million (+13.1%). These factors combined indicate a higher credit risk.

Besides, both the number and amount of microloans decreased in the period under review. 61 microloans for a total amount of RUB 46.2 million were provided in the first half of 2017. Compared with the 6-month period in 2016, the amount of microloans decreased by 21.6% (from RUB 58.9 million), their number by 35.1% (from 94 loans).

In the period from July 1, 2016 to July 1, 2017, the portfolio of active microloans saw a tiny increase (by a mere 0.08% from RUB 120.0 million to RUB 120.1 million). As the Fund's capitalization grew much faster in the period under review, the Fund's lending efficiency dropped from 98.2% to 84.3% (-13.9 p.p.), which is a considerable step down towards the Ministry of Economic Development's minimum acceptable level (at least 70%).

The credit rating is supported by the Fund's growing capitalization, good operating efficiency, high equity capital adequacy, high level of security for the microloans, good microloan portfolio diversification in terms of industries.

In the period under review, the Fund's capitalization increased by RUB 20.1 million to RUB 142.4 million (+16.4%). The Fund received RUB 19.0 million from the federal budget, RUB 1.0 from the regional budget, RUB 0.1 million from the local budgets. The higher capitalization provides good opportunities for increasing the volume of the Fund's asset-side transactions.

We also appreciate the good operating efficiency of the Microcredit Company State Fund for Support of Entrepreneurship of the Kemerovo Region. The ratio of operating expenses to the average active microloan portfolio in the period under review stayed close to 9% and was 9.4% on July 1, 2017 (the Ministry of Economic Development's requirement being no more than 30%).

Besides, the Fund's rating is supported by its high equity capital adequacy ratio which was 112.4% on July 1, 2017 and never went below 100% in the period under review, which meets the recommended level (at least 15%) with a good margin absorbs the credit risks assumed by the Fund.

The high level of security for the loans provided by the Fund also contributes to the rating. As of July 1, 2017, the amount of security interest agreements reached RUB 444.4 million exceeding the portfolio of active microloans 3.7 times, which enables the Fund to reimburse possible losses under a stress scenario.

As of July 1, 2017, the Fund's microloan portfolio was well-diversified in terms of industries, the real sectors of economy staying at acceptable levels (8.8% for agriculture, 6.1% for transport and communications, 5.9% for construction), while the retail and manufacturing sectors accounting for most of the loans (30.4% and 29.0%, respectively). The breakdown of the Fund's loan portfolio by economic sectors is healthier than the structure of loans in Kemerovo region as a whole. The good microloan portfolio diversification reduces the Fund's risks in case of economic deterioration of separate sectoral structure components.

Full Fund name: Microcredit Company State Fund for Support of Entrepreneurship of the Kemerovo Region

The rated Fund has been engaged in microfinance activities since 2010. The sole founder of the Fund is the government of Kemerovo region. The Fund is registered in the state register of microfinance institutions under no. 6110742000412 as of August 24, 2011. For the whole period of microfinance activities, the Fund has concluded 1,177 microloan contracts for a total amount of RUB 777.3 million.

AK&M Rating Agency assigned a credit rating to the Fund for the first time on August 29, 2014. The last rating action was taken on September 07, 2016. All rating action announcements are published on the akmrating.ru website.

The rating is valid until July 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Fund's rating 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 microfinance organization "Microcredit Company State Fund for Support of Entrepreneurship of the Kemerovo Region" 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 opinion on the Fund's reliability 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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www.akmrating.ru

Phone no.: (495) 916-70-30, fax no.: (499) 132-69-18.