The 'A++' rating indicates that nonprofit organization "Stavropol regional Microfinance Fund for small and medium business" (SRMF SMB) qualifies as a microfinance institution with the highest level of solvency possible. The risk of a failure to meet obligations in time is insignificant. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

The key positive rating drivers include growing capitalization, a low percentage of overdue debt, compliance with regulatory requirements for key performance indicators and high quality of claim settlement activities.

One of the positive rating drivers is support from federal and regional authorities, particularly the provision of RUB 46.3 million from budgets of various levels in 2017. As a result, the Fund's capitalization increased by 12% since the start of the year to reach RUB 501.2 million as of October 1, 2017. The higher funding base enabled the Fund to expand its microloan portfolio: the amount of active loans reached RUB 474 million at the end of the 9-month period in 2017.

The low share of overdue loans also contributes to the rating. As of October 1, 2017, loans with payment delays exceeding 30 days accounted for 2% of the microloan portfolio. Therefore, the portfolio-at-risk (PAR) ratio meets the regulatory authority's requirements (the maximum acceptable value being 12%) with a good margin.

We also appreciate the high quality of claim settlement activities as a positive rating driver. As of October 1, 2017, the Fund's debtor register has a total of 15 SME businesses unable to timely and fully repay their obligations to the Fund (total overdue debt reaching RUB 29.6 million). The Fund's recovery percentage reaches 73%, an evidence of the microfinance institution's fairly effective risk management system, which makes a positive impact on the Fund's rating.

As of the last reporting date, the write-off ratio was 0.68%, which is substantially below the maximum acceptable ratio of 5%.

The rating is also supported by full compliance with the Ministry of Economic Development's Order 167 dated March 25, 2015. As of October 1, 2017, the microcredit institution's lending efficiency (the ratio of the active microloan portfolio to the amount of funds transferred to the Fund for implementing the microfinancing program) was 94.6% (the minimum acceptable threshold being 70%). The Fund's operational sustainability reaches 143.6%, while the minimum required percentage is 100%. The operational efficiency of microfinancing activities (the ratio of operating expenses for the period from October 1, 2016 to October 1, 2017 to the amount of microloans provided for this period) is 5.1%, the maximum acceptable level being 30%.

The rating is constrained by growing overdue debt. In the period from October 1, 2016 to October 1, 2017, the portfolio of loans with payment delays increased by 20% to reach RUB 9.5 million as of the last reporting date. It should be noted that microloans with payment delays exceeding 90 days, the source of potential losses for the microfinance institution, accounted for almost the whole of arrearage.

Another rating constraint is the continuing contraction of the Fund's active microloan portfolio: 89 loans were provided over the period from October 1, 2016 to October 1, 2017. As of the last reporting date, the average microloan amount was RUB 1.1 million. This pushes up risks of higher losses should the Fund's borrowers default.

Non-profit organization "Stavropol regional Microfinance Fund for small and medium business" was established in 2010 with the aim of providing microloans to small and medium-sized businesses in the region. The sole founder of the Fund is the Ministry of economic development of Stavropol Krai. The Fund was registered as a microfinance institution on August 12, 2011.

As of October 1, 2017, SRMF SMB concluded 3,497 micro-lending contracts for a total amount of RUB 2.3 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 November 14, 2014. The last rating action was taken on November 9, 2016. All rating action announcements are available on the akmrating.ru website.

The rating is valid until November 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the microfinance organization'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 Stavropol regional Microfinance Fund for small and medium business 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 microfinance institution's efficiency 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 Russian national rating agency engaged in rating activities since 1993.

AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

www.akmrating.ru

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