The 'B+' rating indicates that means that MFI FML in Sevastopol qualifies as a microfinance institution with satisfactory creditworthiness. The risk of full or partial default is low. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

MFI FML in Sevastopol was established in late 2014 with a view of implementing the Government of Russia's program to develop small and medium-sized businesses in Sevastopol city. The Fund has been engaged in microlending since December 09, 2014.

The credit rating is essentially supported by acceptable concentration of risks, growing operational sustainability and higher capitalization.

We appreciate the acceptable level of risk concentration at MFI FML in Sevastopol. As of April 1, 2016, the average loan amount was RUB 0.66 million (the upper threshold set by the regulatory authority being RUB 0.7 million), the Herfindahl-Hirschman index is 347 (the optimal level being 270). This reduces the potential losses arising from the borrowers' failures to repay the money.

The faster growth of incomes compared with the growth of expenses caused positive operational sustainability changes in the period under review. As of April 1, 2016, the operational sustainability ratio of MFI FML in Sevastopol reached 181%, meeting the Ministry of Economic Development's requirements (at least 100% after two years in operation). This year's positive financial result of the Fund has resulted from considerable interest earnings from investments. As of July 1, 2016, the Bank deposited RUB 20 million on current accounts at a Bank with a credit rating comparable to 'A++' on the AK&M Rating Scale.

The Fund's rating is additionally supported by growing capitalization. In the fourth quarter of 2015, RUB 20.04 million was provided to the Fund from the federal and regional budgets; as a result, capitalization of MFI FML in Sevastopol increased by 67% to reach RUB 50.04 million.

The Fund's rating is constrained by its small experience in the market of microfinance services, low lending efficiency and weak loan portfolio diversification in terms of industries.

One of the key rating constraints is 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).

As of April 1, 2016, the lending efficiency ratio of MFI FML in Sevastopol was 44%, which means a failure to meet the Ministry of Economic Development's applicable requirement (at least 70% after one year in operation).

The portfolio of microloans is under-diversified across industries: small and medium-sized businesses borrowing from the Fund that are engaged in the wholesale and retail sector account for 74% (RUB 16.4 million) of the total amount of loans as of April 1, 2016.

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 has assigned a credit rating to MFI FML in Sevastopol for the first time. All rating action announcements are available on the akmrating.ru website.

The rating is valid until July 2017. 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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