The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings has today assigned a first-time issuer rating and a senior unsecured debt rating of B+ to JSC MFO Micro Business Capital. All ratings have a Stable Outlook.

Rating rationale

The rating on Micro Business Capital reflects its adequate financial profile and profitability metrics despite its comparatively minor position in the Georgian microfinance market.

Management took early measures to create a robust organisational and governance model, as well as the infrastructure and best risk practices to allow for scalability. Scope therefore deems MBC well positioned to thrive in an increasingly competitive market.

However, given MBC’s monoline business model and lack of geographical diversification, its rating is limited by and very sensitive to the highly dollarized Georgian economy.

The larization scheme initiated by the government and the National Bank of Georgia in 2017 has affected the microfinance sector’s profitability and will continue to do so in the medium term.

Rating-change drivers

Among potential negative rating-change drivers, Scope highlights: i) a deterioration in asset quality; and ii) a currency mismatch that further weighs on profitability.

Positive rating-change drivers would be: iii) a successful transition from MBC’s highly encumbered balance sheet to uncollateralised institutional funding; and iv) a sustainable improvement in the company’s competitive position.

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) (Bank Rating Methodology) is available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and the rated entities’ agents.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst: Chiara Romano, Senior Analyst
Person responsible for approval of the rating: Dierk Brandenburg, Managing Director
The ratings/outlooks were first released by Scope on 3 February 2020.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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