Author: AYOB & ALI

Introduction:

On the global financial stage, Micro Connect has become a noteworthy case due to its unique business model and emphasis on compliance with Islamic finance. This article aims to explore Micro Connect's business model, market positioning, and its attempts and efforts in Islamic finance compliance, as well as how this compliance affects its profit-sharing and risk control strategies.

1. Macau's Financial Regulatory Environment and the Establishment of Micro Connect:

Macau, with its relatively relaxed financial regulation, has provided opportunities for financial investment and financing companies like Micro Connect to grow. However, this environment has also raised concerns about financial stability and transparency. The regulatory responsibilities of the Macau Monetary Authority do not include detailed rules for investment and financing supervision, which may have provided rapid development space for Micro Connect but also brought risks of regulatory absence.

2. Micro Connect's Investment Model and Market Doubts:

Micro Connect has invested in tens of thousands of small and micro enterprises in China in a short period, with a total amount exceeding 2 billion yuan. Although its investment model appears innovative, the market remains reserved about the secrecy of its cooperation methods, the absence of collateral requirements, and the effectiveness of risk control. Whether this model is truly sustainable and its actual impact on promoting the development of small and micro enterprises are focal points of market attention.

3. The Revenue Sharing Model DRC and Investment Product DRO:

Micro Connect has proposed the concept of the Revenue Sharing Model DRC (Daily Revenue Sharing Contract) and developed the DRO (Daily Revenue Obligation) investment product based on this contract, which is an investable product provided by Micro Connect Macau Exchange for international investors. Although theoretically attractive, the lack of specific implementation details and market transparency makes it difficult for investors and analysts to fully assess its risks and returns. The innovation of this model lies in its abandonment of the traditional profit-based sharing method in favor of an income-based sharing, which has reduced the investment threshold to some extent but also increased the dependence on income stability.

4. Islamic Finance Compliance and Profit Sharing:

As the first project in China to obtain certification from an Islamic finance compliance organization, Micro Connect's profit-sharing model follows the principles of Islamic finance, avoiding interest payments in traditional financial products and instead adopting an income-based sharing method. This model, known as "Mudarabah" (trust investment contract) in Islamic finance, allows investors and managers to share profits while sharing risks. This not only respects religious regulations but also provides new ideas for financial product innovation. However, the specific definitions between equity and debt in the DRC and DRO model are very vague and may have dual nature, which is also a focal point of market attention.

5. Market Segmentation and the Development Prospects of DRO Products:

Micro Connect has the potential to integrate and segment various investable securities tools from the store operation data of the Chinese market, but its current DRO product development is still in the initial stage. The lack of professional Halal consultants and industry analysis teams also limits its development in specific market segmentation areas. To achieve this goal, Micro Connect needs to further deepen market research, establish a professional team, and cooperate with industry experts to ensure that its products can meet the needs of different market segments.

6. Capital Recovery System and Risk Control:

Micro Connect's capital recovery system (Automated Repayment Mechanism) aims to protect investors' principal, but it avoids using the term "investment recovery," indicating a cautious attitude towards risk. However, the lack of specific risk control measures and the public disclosure of terms increases market uncertainty. To enhance market confidence, Micro Connect needs to further clarify its risk control mechanisms and disclose more information to the public at the appropriate time.

7. Financial Product Transparency and Market Expectations:

Compared with bank financial products, Micro Connect has not yet disclosed its daily sharing ratio, annual return rate, cooperation period, or cooperation termination conditions, which is a gap compared to the market's expectations for financial product transparency. Investors need more information to make informed investment decisions. To meet market expectations, Micro Connect needs to improve the transparency of information disclosure while protecting business secrets.

8. Views and Outlook:

As a representative of financial innovation, Micro Connect has high market attention and is the first project in China to obtain certification from an Islamic finance compliance organization. However, the actual investment and operation of the company are difficult for outsiders and institutions to accurately assess. The author believes that Micro Connect should continue to improve transparency, ensure that financial products serve resource allocation and social welfare, and avoid seeking quick success and instant benefits, allowing finance to return to its essence. In addition, Micro Connect also needs to strengthen communication with regulatory authorities to ensure that its business model complies with regulatory requirements, thus finding a balance between innovation and compliance.

Conclusion:

The case of Micro Connect demonstrates the possibility of integrating financial innovation with Islamic finance compliance and also reminds us that on the path of financial innovation, the improvement of regulation and transparency is equally important. Only on the basis of ensuring controllable risks and transparent information can financial innovation develop healthily and sustainably, bringing real welfare to society. The future of Micro Connect will depend on how it responds to market challenges and how it finds the right balance between innovation and compliance.

About Micro Connect

Micro Connect is an exchange group that leverages financial technology to connect global capital with micro and small businesses. Through its innovative revenue sharing investment and financing model, stores in the Food & Beverage, Retail, Services, and Culture & Sports sectors can access affordable long-term capital on Micro Connect (Macao) Financial Assets Exchange (MCEX), the world’s first licensed exchange for daily revenue shares.