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 creditworthiness possible and the lowest risk of a delay in meeting liabilities imaginable.

The rating upgrade reflects the microfinance organization's higher capitalization, stronger support of small and medium-sized businesses in the region, a steadily low percentage of arrears on microloans amidst negative trends in the market, growing operational sustainability, operating efficiency improvements, high claim settlement performance.

In 2015, the Fund received a total of RUB 69.3 million in subsidies from the federal and regional budgets, with the result that its target capital for microfinance activities increased by more than 20% which enabled the Fund to expand its credit support to small and medium-sized businesses in the region. As a result, the amount of active microloans provided by the Fund increased from RUB 326.5 million to RUB 432.8 million (+32.6%) for the 9-month period in 2016. Both the Fund's capital and the credit support to SME businesses have seen the highest growth in the last 4 years of the microfinance institution's operation. This simultaneous growth is one of the key rating support drivers for the MFI.

We appreciate the steadily low level of arrears on the microloans provided by the Fund. As of October 1, 2016, the overdue loan percentage was a mere 1.84% decreasing almost twice since the start of the year as a result of the pledged property disposal and the conclusion of out-of-court settlement agreements under a number of contracts with payment delays. Given the relatively low solvency of SME businesses in Russia (the arrearage reaching 14.4% as of September 1, 2016) and in Stavropol Krai (10.7%), the Fund's overdue debt management should be recognized as fairly effective. As a result, the Fund meets the applicable requirements for the portfolio-at-risk (PAR) ratio (the share of payment delays equal or exceeding 30 days) with a huge margin (1.8% against 12%).

As of October 1, 2016, the microfinance institution's lending efficiency was 104.5% owing to retained earnings. The Fund's current profit performance brought about improvements in its operational sustainability (from 119.8% to 156.0% in 2016) and the ratio of operating expenses to the portfolio (from 6.9% to 4.2%). 

Over the period of existence, the Fund was involved in litigation against 44 insolvent borrowers. The total amount of claims in these legal cases was RUB 22.5 million. As a result of the claim settlement efforts, the Fund recovered RUB 11.7 million from the borrowers, with only RUB 3.1 million written off as irrecoverable debt. The write-off ratio was 0.57% as of the last reporting date, which is almost 10 times below the maximum acceptable percentage (5%).

The Fund's rating is additionally supported by a high share of funded security (92% of the colletaral value under effective microloan contracts), sufficient provisions against possible loan losses (111.3% of the overdue debt), as well as a good portfolio breakdown across industries (the similarity to the regional portfolio of loans to legal entities and sole proprietors exceeds 90%).

The ill-balanced structure of overdue debt continues to put pressure on the Fund's rating. As of October 1, 2016, microloans with payment delays exceeding 90 days, the source of potential losses for the microfinance institution, accounted for almost the whole of arrearage (more than half of the payments are one-year and over-one-year overdue). That said, we note that even the simultaneous write-off of the overdue debt would not seriously impair the Fund's financial profile or result in a violation of basic performance requirements.

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 September 30, 2016, SRMF SMB concluded more than 3,000 micro-lending contracts for a total amount of RUB 1.84 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 12, 2015. 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. October 12, 2015.

The credit 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 national rating agency engaged in rating activities since 1993.

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