The 'A' rating indicates that the microcredit company "Fund of development of small and average business of Vladimir region" (FDSA) qualifies as a highly creditworthy microfinance institution. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

The credit rating is supported by the Fund's growing capitalization, high lending efficiency, satisfactory level of overdue debt, effective risk management and debt recovery system.

In 2016, the Fund received RUB 14.7 million from the federal and regional budgets. As a result, its capitalization reached RUB 125.6 million as of April 1, 2017 increasing by 27% since our previous review.

The lending efficiency and operational efficiency of FDSA meet the levels recommended by the regulatory authority. At the end of the first quarter of 2017, the effective microloan portfolio accounted for approximately 94.5% of the amount allocated for microlending purposes, which exceeds the regulatory value recommended by Russia's Ministry of Economic Development. The ratio of operating expenses to the average loan portfolio was 2.3% as of April 1, 2017 (the maximum threshold set by the regulatory authority being 30%).

The portfolio-at-risk (PAR) ratio (in terms of the Ministry of Economic Development of Russia's Order 167 as of March 25, 2015) decreased twice for the past year to 2.5% as of April 1, 2017, far below the maximum acceptable percentage of 12%. Besides, the microcredit company "Fund of development of small and average business of Vladimir region" reduced the amount of overdue debt in the microloan portfolio by 38%, which we certainly regard as a positive rating driver.

As of April 1, 2017, the register of the Fund's debtors contained 12 SME businesses which failed to repay their obligations to the Fund in time and in full (the total outstanding debt payable to the Fund being RUB 2,967 thousand). The percentage of funds recovered by the Fund is 72%, an evidence of an effective risk management system of the microfinance institution, which contributes to the Fund's rating.

We appreciate the high level of security for the loans provided by FDSA exceeding the amount of existing microloans more than 4 times. This substantially mitigates the risk of irrecoverable loss of money should clients default on their obligations.

The rating of the microfinance institution is constrained by a reduction in the amount of microloans provided by it and inability to meet the operational sustainability ratio requirements.

In the period under review, the amount of microloans provided by FDSA decreased to 11 loans for a total amount of RUB 14.6 million in the first quarter of 2017, which is 31% below the Q1 2016 result. We note the Fund's policy of increasing the maximum possible loan amount per SME business. For the past year, the maximum microloan amount increased from RUB 1 million to RUB 3 million, which implies higher potential losses should the borrowers default on loan repayment obligations.

In 2016, the microfinance institution posted a loss on loans of RUB 1.2 million, its write-off ratio reached 4.6% approaching the upper threshold of 5% set by the regulatory authority. In the first quarter of 2017, the Fund additionally wrote off a total of RUB 0.5 million in loss of loans. However, the expansion of the effective loan portfolio reduced the write-off ratio to 4.1%.

In the first quarter of 2017, the Fund reduced its expenses by 34% year-on-year while preserving the level of its incomes at RUB 3 million. As a result, the operational sustainability ratio increased to 93%, even though still unable to meet the Ministry of Economic Development's requirements.

Full Fund name: microcredit company "Fund of development of small and average business of Vladimir region"

Short name: FDSA

The Fund of development of small and average business of Vladimir region (FDSA) was established in 2009 with the participation of the Business Development, Trade and Services department of Vladimir region to ensure and support favorable conditions for the operation and development of SME businesses in the region. For the whole period of microfinance activities, FDSA has concluded 719 microloan agreements for a total amount of RUB 685.1 million.

AK&M Rating Agency assigned a rating to the microcredit company "Fund of development of small and average business of Vladimir region" for the first time on December 22, 2015. All rating action announcements are published on the akmrating.ru website.

The rating is valid until June 2018. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the microfinance institution's 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 credit rating to the microcredit company "Fund of development of small and average business of Vladimir region" 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 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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