EXCLUSIVE INTERVIEW
comes from banks and the fixed income universe. But the very nature of fixed income is based on “fixed” or limited risk, so it doesn’t sit well with the high- volatility, high-risk nature of China’s vast consumer economy. This has led to a gaping chasm between the world’s biggest source of capital, and the largest potential source of returns. It is a divide that can only be addressed through digitalisation – by exploring digital synergies that can help close the gap. Micro Connect’s role aims to “neutralise” the equity pool between these entities. Instead of pursuing a traditional finance path involving shareholders, we enable a kind of mutual equity pool where investment is made into small little businesses and small cash flows. This equity-like funding is much smaller than the offerings of the fixed income space. But the model we propose offers secondary potential – bigger players can become involved at a later stage. Micro Connect is the vehicle that can facilitate equity investment from the middle – it can protect external investors from excessive risk exposure and instead, absorb risk directly. We take on the risk and enjoy the high returns. Meanwhile, investors pay cash for limited risk and return, which allows capital to flow immediately back into the business in a cyclical manner. This cycle brings benefits – it shields banks from risk, so there’s no need to charge small businesses high fees. Diversification helps mitigate our own risk. Micro Connect aims to invest in many MSMEs, so that while individually, these businesses may be considered unbankable or may be subject to a 30% failure rate, when considered as a whole, overall risk exposure is low. The concept is similar to the Shanghai-Hong Kong Connect and the Shanghai-Shenzhen Connect. We aim to connect micro businesses with the global
few weeks before renting a small space on the 29th floor of Two Exchange Square. It started from there.
Q: Would Micro Connect have been able to progress from concept to fruition at speed if it weren’t for the pandemic? A: The pandemic was not a good thing. But without it, we wouldn’t have been able to materialise our concept so quickly. The early stages required us to talk to local chains and franchises on the ground in China. In “normal” times, we would have had to travel to conduct the usual business formalities with brand founders in person. But the pandemic facilitated quick, virtual introductions. We were able to execute business quickly and to implement an important feedback loop. We tested and flooded out what didn’t work, and solidified what did. The pandemic accelerated the start-up’s progress by at least a couple of years. Q: You published a white paper identifying China’s consumer economy as accounting for 60% of the market’s GDP. Yet, the segment is massively underserved. What opportunity does Micro Connect seek to address? A: Our data and intelligence supports that Micro Connect will contribute to the development of China’s MSME sector from an economic perspective – by facilitating investment and offering returns to investors, as well as through social impact. Working in the financial sector, we had not really felt the harsh realities of the “real economy”, which is propped up by MSMEs. Despite constituting a vital component of the economy, these have always been kept from the core financial services offered by Wall Street. Equally, China’s blue ocean of opportunity is not easily accessible by global capital. Typically, the largest source of business funding
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FINANCEASIA.COM
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VOLUME ONE 2023
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