The 'B++' rating indicates that MFI FML in Sevastopol qualifies as a microfinance organization with a satisfactory degree of reliability. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

The rating upgrade reflects the microfinance organization's growing capitalization, growing support of small and medium-sized businesses in the region, growing lending efficiency, operational efficiency improvements and ability to keep the level of overdue debt equal to zero, despite adverse market trends.

In 2016, the Fund received subsidies for a total amount of RUB 11.4 million from federal and regional budgets, with the result that its target capital for microfinance activities increased by more than 20%. As of April 1, 2017, the Fund's capitalization reached RUB 60.9 million.

As the funding base increased, the Fund expanded its microloan portfolio. In 2016, MFI FML in Sevastopol provided 53 loans for a total amount of RUB 71.1 million (+51% year-on-year). The average microloan amount in the period under review increased from RUB 0.7 million to RUB 1.6 million. As a result, the current portfolio of microloans amounted to RUB 50.6 million at the start of 2017, the lending efficiency reaching 81%.

As the current portfolio of microloans increased, the Fund reduced its operating expenses to 1.85% of the average loan portfolio from 6.14% at the moment of our previous review (the upper limit set by the regulatory authority being 30%).

For the whole period of microfinance activities, the Fund has concluded 98 microloan contracts for a total amount of RUB 109 million as of April 1, 2017. It should be noted that some of the loans provided by MFI FML in Sevastopol for a period of no more than 1 year at the dawn of activity are already repaid, with no overdue debt ever at all. Therefore, the borrowers fully and timely performed their obligations to the Fund, an evidence of the microfinance institution's competent lending policy.

The rating is additionally supported by a conservative policy pursued by the Fund in relation to loan security. Movable and immovable property is accepted as collateral on microloans exceeding RUB 150,000. As of April 1, 2017, the value of collateral on the current loan portfolio was RUB 173 million exceeding the amount of existing microloans 2.4 times.

The rating is constrained by the microfinance institution's small experience in the market of microfinance services and, consequently, lack of experience in handling stress cases (such as recovery of long-term overdue debts or disposal of security when borrowers default).

The loan portfolio remains poorly diversified in the way of industrial sectors. Most of the borrowers (67%) are small and medium-sized businesses engaged in wholesale and retail trade accounting for a total of RUB 34.1 million in loans as of April 1, 2017. The breakdown of the Fund's loan portfolio by economy sectors is not consistent with the sectoral structure of the region. The correlation ratio is 6%.

Full Fund name: nonprofit organization "Microfinance institution Fund of microlending to small and medium-sized businesses in Sevastopol city"

Short name: MFI FML in Sevastopol.

The nonprofit organization "Microfinance institution Fund of microlending to small and medium-sized businesses in Sevastopol city" was registered on November 5, 2014. Its sole founder is the Economic Department of Sevastopol city.

AK&M Rating Agency assigned a credit rating to MFI FML in Sevastopol for the first time on August 1, 2016. All rating action announcements are available on the akmrating.ru website.

The rating is valid until August 2018. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the microfinance institution's creditworthiness 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 MFI FML in Sevastopol 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 opinion on the Fund's creditworthiness 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.

AK&M Rating Agency

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www.akmrating.ru

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