Micro Connect: Opening up opportunities for micro and small businesses in China

Micro Connect's investment model is inspired by "drip irrigation". It's a vivid analogy. Drip irrigation systems deliver tiny amounts of water and nutrients directly to a plant's roots at precisely the right time in the growth cycle. In the same way, Micro Connect enables capital from a community of global investors to flow to very small Chinese businesses when they most need it, so that they can grow and scale.

Micro and small businesses are the grassroots of the Chinese economy; they account for more than 60% of China's GDP¹. These businesses offer investment potential, but, owing to a lack of formal channels for global investors, most struggle to raise capital.

Micro Connect's ambition is to bridge this divide, by building a new financial market platform, that will give China's micro and small businesses adequate and sustainable financing, while allowing global investors to invest in their growth and diversify their portfolios. The company's long-term vision is to create a new investment paradigm that aims to make financial markets more equitable, more inclusive and socially more impactful.

Breaking new ground

In a first step towards this goal, the company has created an investment model that takes advantage of the broad-based digitisation of China's consumer economy. Even micro and small businesses are highly digitised, which often provides greater transparency and visibility on their cash flows and profitability. With this level of visibility, Micro Connect can invest in thriving bricks-and-mortar small businesses across 184 sub-sectors ranging from food and beverage, to culture and sports.

Micro Connect has developed a new financing product – Daily Revenue Obligations (DROs) – which channels global capital to micro and small businesses. In return, it collects a percentage of their daily cash flow through a digital payment system and distributes it to investors using its proprietary blockchain technology. Investors can see where their money is channelled and the returns that they receive daily in their accounts.

Since launching in early 2021, Micro Connect has secured two rounds of funding, successfully invested in over 2,900 micro and small businesses in over 180 cities across China.

In March this year, Micro Connect launched its Micro Connect Macao Financial Assets Exchange (MCEX) in Macao. MCEX is the first licensed global exchange for Daily Revenue Obligations (DROs), a new asset class that connects institutional capital around the world with China's micro and small businesses.

Supporting Micro Connect's growth journey

HSBC has played a significant part in Micro Connect's success story. It was the first bank to arrange an asset-backed loan of US$25 million through its fund dedicated to helping innovative businesses in new economy sectors such as e-commerce, fintech, robotics, biotechnology and healthcare technology across the Greater Bay Area.

"We are pleased to have received this facility from HSBC, which marks a critical milestone as it opens up a new, sustainable funding channel for our long-term growth," says Charles Li, Founder and Chairman of Micro Connect. "As we continue to scale our micro and small business investments in China and beyond, we look forward to closer collaborations with HSBC as a long-term finance partner."

Frank Fang, General Manager, Head of Commercial Banking, Hong Kong and Macau, HSBC, says: "At HSBC, we constantly look into developing tailored solutions to cater to innovative business models across different sectors, including fintech companies and start-ups which are reshaping the future of finance. We are delighted to be the first bank to arrange an asset-backed loan facility for Micro Connect, deepening our long-term relationship to support their expansion strategy."