The 'A' rating indicates that the Kirov Regional Fund for Support of Small and Medium-sized Businesses (microcredit company) qualifies as a highly reliable microfinance institution. The risk of a failure to meet obligations in time is low. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

The credit rating is essentially supported by improvements in the portfolio of existing microloans, a conservative approach to the loan security, high quality of claim-related work and compliance of the key performance indicators with the statutory requirements.

For the whole period of microfinance activities, the Fund has concluded 4,718 microlending contracts for a total amount of RUB 3,418 million (as of October 1, 2017). The total amount of financing provided by the Fund to SME businesses during the period from October 1, 2016 to October 1, 2017 was RUB 497 million. Therefore, the portfolio of existing microloans increased by RUB 432 million (+6%), resulting in an improved lending efficiency ratio: the amount of active loans to capitalization was 83.3% as of the last reporting date growing by 5 p.p. since October 1, 2016.

Another positive rating driver is acceptable security of the microloans provided by the Fund. The value of collateral on the current loan portfolio was RUB 1,226.7 million, 2.8 times above the amount of active microloans.

We appreciate the relatively high level of corporate governance and risk management. As of October 1, 2017, the Fund's debtor register had 52 SME businesses unable to timely and fully repay their obligations to the Fund (total overdue debt reaching RUB 18.5 million). The Fund's recovery percentage reaches 50%, which definitely makes a positive impact on the Fund's rating.

The rating is also supported by full compliance with the Ministry of Economic Development's Order 167 dated March 25, 2015. As of October 1, 2017, the Fund's operational sustainability reached 266%, the minimum required percentage being 100%. The operational efficiency of microfinancing activities (the ratio of operating expenses for the period from October 1, 2016 to October 1, 2017 to the amount of microloans provided for this period) is 2.72%, the maximum acceptable level being 30%.

The quality of microloan portfolio is not high enough, which constrains the rating. As of October 1, 2017, the Fund's overdue debt remained at a fairly high level of 5.18% of the microloan portfolio. Microloans with payment delays exceeding 360 days, the source of potential losses for the microfinance institution, accounted for half of the total arrearage (RUB 11.2 million). It should however be noted that the portfolio-at-risk (PAR) ratio (in terms of the Ministry of Economic Development of Russia's Order 167 as of March 25, 2015) was 3.9%, meeting the applicable requirement of the Ministry of Economic Development (no more than 12%) with a good margin.

Besides, we note the lack of support from federal and regional authorities. As of October 1, 2017, the microfinance organization's capitalization reached RUB 518 million, no change since the second quarter of 2014.

The Kirov Regional Fund for Support of Small and Medium-sized Businesses (microcredit company) was established in August 2002. Its founders are Kirov region (represented by the Ministry of development of entrepreneurship, trade and external relations of Kirov region, 50% of the authorized capital), PJSC Norvik Bank (25% of the authorized capital) and the Federal Small Business Support Fund (25% of the authorized capital). The Fund has been engaged in microfinance activities since January 31, 2006. The Kirov Regional Fund for Support of Small and Medium-sized Businesses (microfinance institution) was included in the State register of microfinance institutions on August 2, 2011.

AK&M Rating Agency assigned a microfinance institution rating to the Kirov Regional Fund for Support of Small and Medium-sized Businesses (microcredit company) for the first time on January 18, 2017. All rating action announcements are available on the akmrating.ru website.

The rating is valid until January 2019. 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 microfinance organization rating to the Kirov Regional Fund for Support of Small and Medium-sized Businesses (microcredit company) and the Credit Rating Methodology for Guarantee Institutions rev. February 10, 2016.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the microfinance organization'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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