Charles Li (left), founder and chairman of Micro Connect Group, and Gary Zhang, founder and CEO of Micro Connect Group, answer questions from media after releasing the Micro Connect Macao Market Accepted Protocol on Jan 16, 2023. (LI XIAOYUN/ CHINA DAILY)

Micro Connect Macao Financial Assets Exchange (MCEX) unveiled its provisional version of a market accepted protocol (MAP) on Tuesday, serving as a tool for stakeholders to assess market indicators, including returns and risks.

The protocol came after a five-month operation of the exchange, which aims to assist small and micro-sized enterprises in leveraging their business revenue to attract international financing in the digital era.

As a mark of the second phase, the MAP has introduced the price-to-net contract payment ratio, a benchmark indicator similar to the commonly used price-to-earnings ratio (P/E) on the stock market 

“Digitalization has provided an opportunity to address the longstanding global challenge of connecting international investment with SMEs, as it enables the visualization and traceability of their small and fragmented revenue,” said Charles Li, founder and chairman of Micro Connect Group.

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“The release of the MAP marks a significant milestone for MCEX’s entry into the second phase,” said Gary Zhang, founder and CEO of Micro Connect Group.

During the initial phase, the MCEX developed the daily revenue contract (DRC), which is a revenue-sharing agreement based on SMEs’ daily business income and does not entail equity ownership or repayment of principal and interest. Building upon the DRC, the exchange will issue a daily revenue obligation (DRO) to international investors, serving as evidence of their actual entitlements corresponding to the DRCs.

“The first phase of operation has demonstrated the immense potential of China’s large consumer market, and there is a significant funding gap for brick-and-mortar retail stores, with an annual demand of around 10 trillion yuan ($1.4 trillion),” Zhang said.

As a mark of the second phase, the MAP has introduced the price-to-net contract payment ratio, a benchmark indicator similar to the commonly used price-to-earnings ratio (P/E) on the stock market. The metric helps investors evaluate the market value of a DRO based on its expected future cash flows.

Li said that currently, all MCEX investors are from overseas, while the SMEs are based on the Chinese mainland and Macao, adding that given the significant funding needs of mainland SMEs, although mainland watchdogs have still to approve or reject the Micro Connect model, he believes it’s a matter of time before mainland funds participate.

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Li said he expects this model to be expanded to other Asian countries and regions from the second half of this year. While the focus of overseas expansion will mainly be on developing economies, Hong Kong will be the first destination.

By the end of 2023, over 10,000 stores from 688 chain brands in 270 cities nationwide had been listed and issued on the MCEX, with total funding of 4 billion yuan.

More than 50 international institutional investors have become qualified members of the exchange, including commercial banks, securities firms, and asset management institutions.

Contact the write at irisli@chinadailyhk.com