The 'B++' rating indicates that the Business Microfinance Fund of the Republic of Crimea qualifies as a microfinance institution with a satisfactory degree of reliability. The risk of a failure to meet obligations in time is relatively low.

The rating upgrade is motivated by a substantial capital increase of the Business Microfinance Fund of the Republic of Crimea (hereinafter also referred to as the 'Fund') in the 9-month period of 2016, the amount of financing being almost twice more than in 2014-2015) and a considerable expansion in lending to small and medium-sized businesses.

The positive rating drivers for the Fund include an increase in the amount of credit support provided to small and medium-sized businesses in the region and growing lending efficiency, relatively high security for the microloans, operational sustainability and efficiency improvements, high quality of risk management in relation to lending and overall profitability.

In 2014, the Fund received RUB 50.3 million from the federal budget, RUB 2.7 million from the regional budget for microfinance activities. In 2015, the Fund received another RUB 60.8 million from the federal budget, RUB 3.2 million from the regional budget for the same purposes. In 2016, the target capital transfers from the regional budget increased sharply: the Fund received more than RUB 62 million from the Republic of Crimea, while receipt from the federal budget reached RUB 46.8 million. As a result, the nominal capitalization of the Fund amounted to RUB 225.8 million as of October 1, 2016.

At the same time, the Fund continued to expand lending to small and medium-sized businesses in the region in 2015 and 2016. The number of active loans provided to small and medium-sized businesses soared from 6 in 2014 to 101 in 2015 and further increased to 117 for the 9-month period in 2016. The total amount of active loans provided to small and medium-sized businesses in the region increased from RUB 5 million to RUB 43.5 million in 2015; for the 9-month period in 2016, the total amount of active loans provided to SME further increased more than three times to over  RUB 155.2 million.

Therefore, the Fund has increased the total amount of active microloans and the number of effective contracts. Both parameters reached their 2-year highs at the start of Q4 2016.

The Fund increased its lending efficiency from 5.6% to 37.2% in 2015, to 68.7% for the 9-month period in 2016, i.e. almost to a level meeting the statutory requirement. It should be noted that the lending efficiency ratio reached the highest level in the Fund's history on October 1, 2016.

The growing support to small businesses provided by the Fund in the region is one of the essential positive rating drivers for the microfinance institution.

The Fund maintains a relatively high level of security for the microloans exceeding the amount of existing microloans almost 2.2 times. This substantially mitigates the risk of irrecoverable loss of money should clients default on their obligations.

The Fund's operational sustainability grew steadily in the period under review: from 0.5% to 39.9% in 2015, to 95% by the end of September 2016. Given that the Fund had been operating in the market of microfinance services less than 2 years by October 1, 2016, we regard its operational sustainability as quite acceptable. The growing operational sustainability contributes to the microfinance institution's rating.

Over the same time span, the Fund improved its operational efficiency. From 31.4% at the end of 2015 (exceeding the upper threshold of 30%), this ratio decreased sharply to 7.28% for the 9-month period, the best result in the Fund's history. The operational efficiency improvement trend supports the microfinance institution's rating.

As of October 1, 2016, the Fund's portfolio-at-risk (PAR) ratio was a mere 0.6%, an evidence of the Fund's advanced risk management in relation to lending operations. The write-off ratio remained equal to zero at the start of Q4 2016 indicating the Fund's excellent performance. It should also be noted that none of the microloans provided by the Fund was re-structured as of October 1, 2016. The high quality of lending risk management in the SME sector is a positive rating driver.

In the period under review, the Fund's overall financial result was positive. In particular, its net profit increased 7.9 times in 2015, 1.8 times for the 9-month period in 2016. The overall profitability of the Fund supports the microfinance institution rating.

The main rating constraints include the freezing of resources allocated for microfinance activities and an overdue debt.

Some of the resources allocated for microfinance activities and deposited with JSC FIA-BANK got deeply frozen if not completely lost after the bank forfeited its license and came under bankruptcy proceedings, which we regard as the main rating constraint. The total amount of the Fund's receivables from FIA-BANK reaches RUB 56.2 million, which is approximately 25% of the resources provided to the Fund for the support of small and medium-sized businesses in the Republic of Crimea.

The Fund's rating is also constrained by overdue debt receivables. At the end of the third quarter of 2016, the arrears amounted to RUB 94.2 thousand for the principal debt, RUB 22.2 thousand for the interest.

The microfinance institution 'Business Microfinance Fund of the Republic of Crimea' was registered on August 29, 2014. The Fund was founded by the Ministry of economic development of the Republic of Crimea.

Full Company name: microfinance institution 'Business Microfinance Fund of the Republic of Crimea'.

Short Company name: BMFRC.

As of October 1, 2016, the Fund concluded 262 microloan contracts for a total amount of RUB 237.5 million.

AK&M Rating Agency assigned a microfinance institution rating to the Business Microfinance Fund of the Republic of Crimea for the first time on February 18, 2016. The last rating action in relation to the Fund was taken on April 13, 2016. All rating action announcements are available on the akmrating.ru website.

The rating is valid until February 2018. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the microfinance institution rating are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the microfinance institution. 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 microfinance institution rating to the the Business Microfinance Fund of the Republic of Crimea.

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.

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

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