CJSC AK&M Rating Agency has downgraded the microfinance institution credit rating of the Business Support Fund of Kyzyl on the national scale to 'B'. The outlook is stable.

The 'B' rating indicates a sufficient credit worthiness of the microfinance institution, with a moderate degree of full or partial debt restructuring risk.

The Business Support Fund of Kyzyl affiliated with the Khural of Kyzyl (the representative body of the city delegates) was established in 2009 to support and encourage the development of small and medium-sized businesses in Kyzyl city (The Tyva Republic, Russia). The Fund was registered as a microfinance institution on November 8, 2011. One of its core activities is the provision of microloans to SME businesses registered in the republic.

The microfinance institution rating reflects the Fund's high equity capital adequacy, acceptable operating cost to average loan portfolio ratio, sufficient lending efficiency, and low average amount of loans.

The Fund's equity capital adequacy ratio is ca. 99% (the minimum regulatory requirement being 15%). As of April 1, 2014, the microfinance institution's SME-targeted capital amounted to RUB 7,705 thousand. In 2012, the Business Support Fund of Kyzyl received RUB 2,500 thousand in public funds for microfinance operations (as of January 1, 2013, its capital reached RUB 9.7 million). No subsidies were provided in 2013. The Fund does not resort to borrowed funds, its accounts payable are low (RUB 116 thousand).

The Business Support Fund of Kyzyl's lending operations are appreciably effective. As of April 1, 2014, the Fund's invested 91.7% of the total funds allocated for assistance to SME businesses in microloans (the minimum recommended percentage being 80%). In 2013, the Fund's operating cost to average loan portfolio ratio increased 2.6 times to 18.1% against 7% in 2012, but stayed within acceptable limits (no more than 30%).

The Fund is not committed to lending on a large scale. At the beginning of the second quarter of 2014, the average microloan was RUB 480 thousand. All the loans, subject to the lending terms, are secured by property assets valued by an independent appraiser.

The Fund's rating is essentially impaired by its poor operational sustainability, paucity of microfinance contracts, extremely heavy loan arrears, and high portfolio-at-risk (PAR) ratio.

The Business Support Fund of Kyzyl still fails to meet the MFI operational sustainability target of at least 100% after two years in operation, recommended by the Ministry of Economic Development. As of April 1, 2014, the Fund's expenses were RUB 628.252 thousand above its total income. As a result, the microfinance institution's operational sustainability ratio (52.4%) stayed below the minimum acceptable value, even though increasing 1.3 times against the start of the previous year.

Another negative rating driver is the scanty portfolio of microfinance contracts concluded by the Fund. Over the period of existence, the Fund provided 49 microloans for a total amount of RUB 18.075 million. In 2013 alone, the Business Support Fund of Kyzyl provided 16 microloans for a total amount of RUB 5.390 million (RUB 3.475 million below the 2012 level).

In AK&M Rating Agency's view, the high percentage of loan arrears and portfolio-at-risk (PAR) ratio are also working against the Fund's rating. As of April 1, 2014, the PAR ratio reached 37.8% of the total outstanding microloan debt, 5.4 times above the maximum acceptable level (7%). All of the Fund's overdue receivables (RUB 2.353 million) are more than 360 days in arrears. The Fund has taken proceedings against 5 clients borrowing a total of RUB 506 thousand, to enforce recovery on the property they provided as collateral for the microloans.

Proceeding from the limitation period for some of the overdue loans, the Business Support Fund of Kyzyl's retained loss as of April 1, 2014 increased by RUB 351 thousand (against April 1, 2013) to RUB 1.995 million. As result, the Fund's SME-targeted capital decreased to RUB 7.705 million.

The Business Support Fund of Kyzyl was established 2009, officially registered on November 8, 2011 (entry 6110717000737 in the state register of microfinance institutions).

Being a nonprofit organization committed to encouraging and supporting the SME sector in Kyzyl city, the Fund provides only microfinance services. Its founder is the Khural of Kyzyl (the representative body of the city delegates).

This press release is based on the statement of assigning a microfinance institution rating to the Business Support Fund of Kyzyl City.

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Fund's creditworthiness and shall not be construed as a recommendation to lend funds to the Fund.

CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

CJSC AK&M Rating Agency

ul. Gubkina 3

Moscow, Russia

www.akmrating.ru

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