A Conversation With Our Founder Sinjin David Jung
This conversation is with IBMR.io’s Managing Director, Sinjin David Jung. Sinjin goes in depth on MESE.io here, covering everything from microfinance and the history of microloans to the affect they have on the urban working poor. We also discuss the need for new financial products that are not predatory in nature, and we cover the innovative financial structure of microequities and how the blockchain makes it all possible. Lastly, we cover the all important topic of financial inclusion and the need to mitigate risk for users. Sinjin also answers the all important question of why he decided to create MESE.io in the first place. It’s a fascinating discussion that I think will be well worth your time.
Eric: Okay, Sinjin, so before we jump into the meat of what this is going to be about, I thought we’d start with a kind of a ground laying question and that would be about microfinance…
Sinjin: So microfinance is a category of financial services that directly targets individuals or small businesses that are excluded from the current banking infrastructure. Meaning that they don’t have a strong credit history, or they don’t have strong revenues. It’s usually a family run business, or it’s the urban working poor who are basically living day to day. And this idea of microfinance has really expanded into microcredit, microinsurance, micropayments, so on and so forth. But depending on which country you’re in, there’s different gradients and levels of what you can consider microfinance. You know, there’s even microfinance in the United States, but that would be probably something, you know, under $20,000, whereas somewhere in India microfinance could be as low as a hundred dollars.
Eric: What exactly are we talking about as far as products go? What are the main financial products in microfinance?
Sinjin: Well, the number one product is microloans. Back in 1983, there was a bank created called Grameen Bank by a gentleman named Muhammed Yunus. And he had done it, I believe, in Bangladesh and it was a nonprofit. And what he had done was create this bank which was able to give out small incremental loans at a reduced amount with reasonable payment terms. And the reason why is because in a lot of emerging and developing markets, the main source of credit or loans is through loan sharks or pawn shops, and a lot of their loans are… well, very predatory. And so, he had started that and it was really focused on the rural poor at that time, but microfinance and microloans over the last little while has really exploded. Basically every single bank in emerging markets now has some form of microcredit or microloan product. But when Grameen Bank first started, it was a pure nonprofit. So basically, they were just trying to break even, whereas the microcredit and microloans of today are for-profit and have become in a sense as exploitative as the pawn shops and loan sharks. Because they’re trying to make a profit while paying individuals full market rates and responsible for their infrastructure at normal banking finance rates — yet are taking loans at a micro level, the interest rates need to be quite high to compensate for the imbalance.
To be a little bit more specific, let’s say that I’m a banker in New York, I get paid $200,000 a year. And in order for me to make enough money for myself and a profit for the firm, I’m going to be looking at loans anywhere between, let’s say, $100,000 to $200,000 per loan. And then take 6% to 8% interest on it. But the problem is that even in a developing country, you’re still part of that same banking infrastructure! So, in order for me to make up that same amount of profit with microloans, instead of giving 8% per year, I’m going to have to charge 30% to 40%, even 60% in some cases annually just to make a profit and cover the administrative overhead that exists. Now, the entire reason why microloans were put into place was to help people get out of poverty and to a point where there were self-sustaining. But even if it’s 10% on a $100 loan, you might think, ‘oh, well, it’s just $10. Not very much!’ And on an absolute scale, you’d be right. But on a relative scale, that is a lot of money to some. And also that 10% interest on a 3 month loan, ends up being 40% annually. It’s so much interest that people have been kind of put into this debt trap, paying interest at a standard finance level. Meanwhile, their own businesses are operating at a micro emerging market level. And so it’ll never work itself out. And there’s been other issues as well where banks have tried to actually create communities of people that all come in together to do the microloan so they can reduce the default rate. But what has occurred is that has created a lot of social stress simply because people start to push other people that are in their group saying ‘you need to make these payments or we’re all gonna lose our credit!’
And so when it comes down to it, we identified this issue and I’m not the one who identified it directly. Actually, you know, we’ve been highly influenced by a book called ‘Poor Economics’ by Dr. Banerjee and Dr. Duflo, and we asked ourselves what is another way that we could be very accessible, but instead of being a burden on individuals, actually generate them some kind of return or act as an asset or capital. And that’s how we came to microequities.
Eric: Tell me about MESE.io. What do you have coming up?
Sinjin: So, MESE.io is the Microequity Stock Exchange. And we are the first of our kind. And what we’re doing is we’ve taken tech stocks that we feel meet a certain criteria and then divided a single stock into 10,000 microequity tokens, which individuals are able to invest in and trade with. And the entry point is really low. Let’s say Tesla is at $500, then at 1/10000th of an increment, it would be at 5 cents. And, you know, if Tesla continues its run, where on earth could you invest 5 cents and make a 20% annual return on it? It’s impossible, right?
And that’s what I would say tech equities really afford to individuals and, you know, we didn’t want to simply look at all equities. We’re not in the business of tokenizing all these equities, but we specifically picked equities that, much like how the FAANG (Facebook, Amazon, Apple, Netflix, Google) criteria is, we picked ours based on network effects, the health of the ecosystem and the type of leadership it had. So MESE.io is something that we want to add to the repertoire of microfinance — to really address this issue of creating value for the user where they wouldn’t be subjected to the overhead costs and possible debt trap of entering into microloans. We wanted to give them another tool. And that was microequities. And, you know, equities has to be one of the biggest growth drivers for personal wealth around the world, whether it’s family offices or hedge funds, so on and so forth.
And you know, when you deal with equities in emerging markets, you have huge issues of low liquidity and large barriers to entry in terms of the administrative costs. And a lot of the stocks that are available in emerging markets are very unstable. And they may not have access to multinationals. They may not have access to technology companies. If you think about it, the greatest innovations that are happening in the world, a lot of them are happening in Silicon Valley. But the gains of those companies are only happening in the developed world. And I think this democratizes that access to financial instruments that have a very solid basis for creating capital or creating wealth in the future.
Eric: So, participants in emerging markets don’t have access to technology stocks? I mean, tech stocks have been the driver the most recent stock market rallies here in America.
Sinjin: Yeah, absolutely. And even if they are able to have access to the stocks through brokerage accounts, there’ll be minimum account holdings and deposits that are necessary which may put them out of reach for many. Whereas in our case, as long as you have access to the internet, you will have access to the stocks. And you won’t need a minimum balance. And the way we’re set up is that we’re part of the entire IBMR.io ecosystem. And so if you’re earning ARCC for free through a public mandate network that we have, then with the ARCC, you will also be able to buy the microequities for free as well. So, it’s basically just a very direct way that we can put wealth in your hands and not need to manage it directly, but rather, as long as we’ve picked the right kind of groups of stocks for people to engage in, the market in a 10 year period has always been up.
But I hope that we are able to have an impact in a different way, even for people to start and say, “Hey, look, I own one ten-thousandth of Tesla, but I do own this. I’m not just someone who’s aspiring one day to buy a Tesla. I am participating in the growth of Tesla on acapital level.” And that change in mentality, I think really makes a difference. And I think with microequities, once we expose people to microequities, and to equities in general, and the ability to trade, to have the understanding that they can actually touch these global companies as well, that it’s not just something super far away in Silicon Valley. That they, you know, are participating in some respects. I think this can also open up their general scope and breadth of what is really possible. And if they’re backed with capital that’s debt free, then I think this is the start of something where we’re really empowering people rather than just supporting them, and then let’s see what happens, right? You know, the entrepreneurial spirit is something that is really at the heart of all of capitalism. And as long as we can give people the capital and the kind of vision and confidence to go at it on their own, then why not? And that comes with stability and capital. And we hope to open up those doors for people.
Eric: Let’s talk about the technological innovation here, and that is the microequity, right? Tell me a little bit more about microequity and how you see cryptocurrencies and blockchain playing into this.
Sinjin: So microequity is at its heart a really, really simplistic idea. But the beautiful thing is this is all possible because we’re able to create a digital token, which is decentralized. And, you know, this all started with Bitcoin, and was advanced with Ethereum where you could create smart contracts and individual tokens. The token protocol we’re using is Algorand, and Algorand’s a pretty impressive thing because they’re able to do a thousand transactions per second. Visa does something like 1,300 per second, so it’s commercially viable and they use a pure proof of stake consensus mechanism.
Eric: What’s the difference between fractional share ownership and microequities?
Sinjin: Let’s say that you went to Robinhood where you can buy any fractional amount of a share. Let’s say that you bought 0.5% of a Tesla share, and you benefit from the growth of that particular stock. But when you want to sell that stock, you’ve got to sell it back through Robinhood, because Robinhood is holding that in a pool of stocks for you. And you are not going to affect the price with your 0.5 percentage of one Tesla stock. You’re not a player, you’re just there, really. But with a microequity and a decentralized digital token, this token exists apart from everything. It exists on a public blockchain, so it can be traded freely. And so this one-ten-thousandth of the represented value of Tesla, this microequity, it can actually have it’s own market. It can actually have its own price. It can be traded back and forth, but more importantly, it also can be held completely independently. So no matter what happens, as long as someone is holding custody of these stocks, this microequity will always have its own value and it can be traded and it can be held as an asset and passed on to children or given as a gift or anything! It’s not just held by a single entity. And so, it really becomes a microasset for people the can accrue value and build wealth.
For emerging markets, putting your money in microequities is better than getting a bank account, right? Even if it’s a hundred dollars. Cause the reality is bank accounts and microloans are subject to large interest rates and fees. Even the ATM fee just to withdraw your money is still a dollar! And when you put a hundred dollars in a bank account, you get a monthly fee on it because you haven’t met the minimum balance and when you take money out you’re hit with the ATM fee because you don’t get an exemption since you haven’t met the minimum balance. If you lose 1% of your money every time you want to use it, I mean, why would you want to put any money in a bank? It makes no sense at all.
Eric: When it just gets chipped away!
Sinjin: It slowly gets chipped away. In emerging markets, a bank account is not there for savings per se and to earn interest… more than anything else, a bank account in emerging market society is for safety. I mean, nobody wants to walk around with $2,000 in life savings in their mattress. It’s not convenient, it’s not safe. And so, for a lot of people, when they think about a bank it’s not where you put your money in to earn and save, it’s just where you kind of hold it. In America, if you really want to do something with your savings you don’t keep it in the bank, you put it into a retirement fund or 401k or you get a fund manager and he puts it into equities to grow it.
And this is where we feel microequities can fill a similar role for emerging markets. It can do that because number one, the microequities are tied to the representative values backed by the actual stock. And the stocks that we picked, we’ll get into that in a little bit, are from really high growth, ecosystem based, network effect companies. And so, you know, they have great performance, they have great competitive positioning. They are innovative technology companies and, you know, at IBMR.io we’re all about technology and the societal benefits and wealth that’s created there. And, secondly, you can trade them. And we believe that because they’re able to be traded independently, the value of the accessibility should allow them to trade at a higher valuation than the actual stock itself.
So what’s great about microequities is that let’s say we have Tesla and Tesla is trading at $500. Well, we have automatic price guidance for that, right? So the microequity shouldn’t trade for anything less than like 5 cents, but it could trade higher. And that’s because it has tremendous accessibility for anyone. It has a way for people to see it as a store of value. And the last thing too is that as a microfinance, economic development agency, we are the buyer of last resort. We’re managing this so it doesn’t get out of control. So it doesn’t become a speculative asset, but rather something that people can start to use as a real long-term way to create wealth that isn’t subject to this kind of negative overhead costs and fees.
So yeah, long story short is that, you know, we do feel this is an innovation that’s possible because of digital tokenization which is decentralized on a public blockchain, which allows us to issue these tokens with hardly any overhead costs. And to top it all off, other than the transactional fee, which we take, we have a program where we’re actually giving back to people based on a revenue share of the transactional fee, and there is no minimum fees that we need to charge anyone, the participation is free. And then combined with the other parts of our microfinance network, even buying the microequities can be free for participation in the network itself. All of this would have not be possible pre-blockchain, pre-digital, pre-mobile, right? Even the firms that we picked are themselves benefiting from the internet and mobile revolutions, and their exponential gains are due to that as well.
And that’s something that we can say, ‘Hey, look, we’re not picking GM, we’re not picking, you know, General Electric. We are picking Tesla, Microsoft, Amazon, Apple, Google, Netflix and Twitter’ which benefit from these exponential gains, and that just by participating in our network, you can access the asymmetric gains of these companies with a lot less risk.
Eric: Let’s dive a bit deeper into the companies you chose. First off, how did you decide which stocks to use as the basis for the microequities?
Sinjin: For our initial batch, we chose pretty similarly to what the basis of those in the FAANG group of stocks are. If you’re not familiar basically it’s an acronym that stands for Facebook, Amazon, Apple, Netflix, and Google, and represents basically, you know, high flying tech companies that have the benefit of network effects. And what network effects means is that any kind of business where you get exponential gains through additional connections. And essentially, what is does is create an environment where switching networks is very difficult. And the bigger the network is, the better the services become. That’s what network effects are, which is different from economies of scale. Economies of scale in terms of manufacturing means the more that you produce, the more efficient you are because the cost of buying the goods is less. And your distribution and overhead costs also become less compared to your output. So what we picked though, instead of FAANG, we picked a group of companies called MATTANG: Microsoft, Apple, Tesla, Twitter, Amazon, Netflix, and Google.
We picked these companies specifically, and while we may add on additional companies, they need to really follow this model because one way for us to mitigate risk for our users is because we know these companies are innovative, network effects driven businesses and have responsive management and/or an ecosystem of multiple revenue streams or ventures. What we didn’t want this to be was simply some micro global stock exchange where anyone could list anything. That would essentially be risk but at a micro level, which would be even more damaging for emerging markets. So, you know, there’s a responsibility there for us to be managing it in a responsible way.
Eric: Most of your intended users are likely to be new to equities trading. How else are you going to mitigate risk for them?
Sinjin: I think the biggest thing is that a lot of the users that are going to be on our network are going to come to it through other microfinance or economic development or blockchain related avenues. And so, there’ll be a lot of ways for them to basically get microequity for free and to kind of see it and trial it and to really get to know it. And not to jump in as if it’s, you know, a way to just get rich quick. For us, you know, we are taking a very, very long-term approach to things.
And, you know, MESE.io is under IBMR.io, the International Blockchain Monetary Reserve, where we are building out an entire microfinance ecosystem. And so, through other parts of our ecosystem, as they participate and they earn Asia Reserve Currency Coin (ARCC) for free, that’s our main token, they’ll be able to use that to buy microequities. So they’re protected. There’s a really legitimate concern about mitigating the risk as much as possible and protecting the individual. But in the case with emerging markets, they don’t even have an opportunity with equities at all, so I think there’s a ton of upside as well. With this kind of exposure, yes we’re here to mitigate risk, but maybe there will be some individuals in these markets who have a natural talent to understand and value the equities at this level. And they’ll be able to move themselves up from here.
Eric: Tell me why you decided to create MESE.io.
Sinjin: People talk about financial inclusion, but it’s always financial inclusion into the current system. And if the current system actually worked it wouldn’t be exclusive. It wouldn’t be excluding those who are outside of it. And you have this entire issue where you have high rates of economic development in emerging markets for the last 50 years, and the standard of living hasn’t increased at all for a majority of the people in these developing nations. And you have to ask why? Why is this the case? Because it shouldn’t be like this at all.
But the reality is, as the world has become more wealthy, inequality has also increased. And these kinds of issues haven’t been resolved. And the way they get approached is that people say, ‘Okay, well, we’re going to give people more access.’ And I think that’s not enough. We need to give people a new system, and this system has to work for them at their particular level.
It was important for us to actually say, ‘Look, we’re not basing MESE.io off the gains from technology, but we’re trying to create a system that’s works for people at their particular level.’ I mean, we just really want to make something tangible for people. And I think that’s not trying to get as many people we can into the current system, but rather to make a system that works just for them. And this is, for us, a start towards that.
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The International Blockchain Monetary Reserve is an economic development reserve established to promote inclusive financial development for the urban working poor in emerging markets. IBMR.io has just launched ARCC, the Asia Reserve Currency Coin. It’s the world’s first digital microasset. ARCC are debt free sources of capital for entrepreneurial investment, specifically allotted for the urban working poor, and are a new form of microfinance that exists outside of the established financial and credit systems.
