The 'B++' rating indicates that nonprofit organization "Regional centre of supporting small and middle enterprises" (RCSSME, the Partnership) qualifies as a sufficiently reliable borrower. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant.

The microfinance institution rating reflects the microloan book improvements, the high equity capital adequacy and the profitable microlending operations.

In 2014, RCSSME continued to improve its microloan portfolio which expanded 57% for the 12-month period, a certainly positive signal given that the overall loan debt of SME businesses in Kursk region decreased by 7.4% in 2014.

Equity capital adequacy ratio of the Partnership was 99.6% (the minimum regulatory level being at least 15%). In 2014, the Partnership received a total of RUB 102.5 million in budget allocations for microlending operations and increased the pool of funds intended for microloans to SME businesses in the region to RUB 143.9 million. The robust budget financing takes the external capital borrowing issue off the agenda for the Partnership, at least in the medium term.

The Partnership's SME microlending activity started generating profits in 2014, total earnings exceeding expenses by more than RUB 500,000 as of January 1, 2015. Besides, the total amount of operating expenses at the end of last year indicates the Partnership's propensity to minimize them (a 68.6% reduction in 2014). As a result, the Partnership's operational sustainability ratio reached 168.5% as of January 1, 2015, which is substantially above the minimum threshold set by Russia's Ministry of Economic Development.

At the same time, the Partnership's MFI lending efficiency is low and its average microloan amount exceeds the upper regulatory limit, which constrains its rating.

As the total earmarkings for microlending purposes grew faster than the outstanding debt, the Partnership's lending efficiency ratio, despite an 18.7 p.p. increase to 65.8% in 2014, stayed below the regulatory limit of 80%.

Another point of concern for RCSSME is the upward trend in the average loan amount (reaching RUB 724.6 thousand as of January 1, 2015, i.e. above the upper limit of RUB 700 thousand set by the regulatory authority), with ensuing risks of borrowers' defaults on repayments, hence potentially growing losses.

The amount of loans provided in 2014 (RUB 49.8 million) earned the Partnership a modest 21st position on Expert RA Rating Agency's ranking of 33 noncommercial microfinance institutions in terms of the amount of loans provided for 6 months of 2014.

The positive outlook reflects AK&M Rating Agency's opinion on the probability of further improvements in the Partnership's microlending performance, given the substantial reserves and low margins compared with loan rates at banks.

Nonprofit organization "Regional centre of supporting small and middle enterprises" lending to SME businesses since 2010 was officially registered as a microfinance institution in late 2011. In 2014, the quality management system of RCSSME was internationally certified for compliance with the ISO 9001:2008 standard. RCSSME founders are as follows: the Consumer Market, Small Business Development and Licensing Committee of Kursk region, the Association of Private Transport Operators (Kursk regional public organization), nonprofit organization Kursk Chamber of Commerce and Industry, the Association of Employers (Kursk regional public organization), the Kursk regional department of the Retail, Public Catering, Consumer Cooperation and Business Union of the Russian Federation "Trade Unity".

This press release is based on the Statement of assignment of a credit rating to nonprofit organization "Regional centre of supporting small and middle enterprises".

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.

CJSC Analysis, Consulting and Marketing 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) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

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