This seems like the most plausible proposal around using ICT to increase access to credit and banking services. The questions I have are: beyond the government's paying SMEs for services how else do you stimulate folks to buy from SMEs? How does this catalyze finance for an SME that has trouble accessing credit / How do they qualify to be a part of this program? How does an SME borrow from this system/ can they?
Finally, what will it cost for you to set up this program in Uruguay? I'm sure the judges will need to know that in order to make their decision.
Stimulation of buying from SMEs: Those SME receiving credits in units, will spend these units in Uruguay because the units only can be spend in this country. SMEs will accept these units as payments because it means extra turnover and (for those that receveived credits in units they can pay back their loans with units). In a later stage, consumers can buy units, receiving a bonus (e.g. 11 units for $10) in this way stimulating purchases at members of C3U, which mostly will be SMEs. The costs of the bonus are paid by the fee of exchanging units back to money.
Qualify for this program / borrowing from the system: Any SME can become member of C3U, having the advantages of the opportunity of extra turnover and access to a modern, digital payment system. The MFIs participating in C3U decide which SMEs qualify for a credit in units, applying the same rules as with credits in money. Because for the MFIs the costs of attracting loan capital are lower than with conventional credit (credits in units are backed by loan guarantees which is much cheaper than actually take a loan), their rotating fund can be larger, in this way giving more credits to SMEs.
The development cost of C3U are about $1.5 mln. This includes developing the open-source payment software Cyclos, setting up procedures preparing manuals, legal research, etc. These costs are covered by the Uruguayan government, IDB and funding obtained by our own organization STRO. New C3s don't have to make these development costs, because the software and manuals are available for free. They only have to cover the operational costs of a C3, which vary according to local circumstances and scale. An estimation of yearly operational costs is $150-400,000. As explained in our proposal, the C3 has several earning mechanisms. The expected break-even point for C3-Uruguay is 18 months after starting the operations. From then, the initital investments can be paid back.
Through our participation in this contest, we hope to find investors for cofinancing new C3s. Several countries already showed formal interest to implement a C3 and are willing to provide cofinancing.
Thanks for clearing that up. I would definitely suggest putting that info into the proposal if it isn't already. Especially the cost and sustainability stuff you mention in paragraph 3 of your response.
Comments
This seems like the most plausible proposal around using ICT to increase access to credit and banking services. The questions I have are: beyond the government's paying SMEs for services how else do you stimulate folks to buy from SMEs? How does this catalyze finance for an SME that has trouble accessing credit / How do they qualify to be a part of this program? How does an SME borrow from this system/ can they?
Finally, what will it cost for you to set up this program in Uruguay? I'm sure the judges will need to know that in order to make their decision.
Best of Luck!
Josh
Dear Josh,
thanks you for your kind comments.
Stimulation of buying from SMEs: Those SME receiving credits in units, will spend these units in Uruguay because the units only can be spend in this country. SMEs will accept these units as payments because it means extra turnover and (for those that receveived credits in units they can pay back their loans with units). In a later stage, consumers can buy units, receiving a bonus (e.g. 11 units for $10) in this way stimulating purchases at members of C3U, which mostly will be SMEs. The costs of the bonus are paid by the fee of exchanging units back to money.
Qualify for this program / borrowing from the system: Any SME can become member of C3U, having the advantages of the opportunity of extra turnover and access to a modern, digital payment system. The MFIs participating in C3U decide which SMEs qualify for a credit in units, applying the same rules as with credits in money. Because for the MFIs the costs of attracting loan capital are lower than with conventional credit (credits in units are backed by loan guarantees which is much cheaper than actually take a loan), their rotating fund can be larger, in this way giving more credits to SMEs.
The development cost of C3U are about $1.5 mln. This includes developing the open-source payment software Cyclos, setting up procedures preparing manuals, legal research, etc. These costs are covered by the Uruguayan government, IDB and funding obtained by our own organization STRO. New C3s don't have to make these development costs, because the software and manuals are available for free. They only have to cover the operational costs of a C3, which vary according to local circumstances and scale. An estimation of yearly operational costs is $150-400,000. As explained in our proposal, the C3 has several earning mechanisms. The expected break-even point for C3-Uruguay is 18 months after starting the operations. From then, the initital investments can be paid back.
Through our participation in this contest, we hope to find investors for cofinancing new C3s. Several countries already showed formal interest to implement a C3 and are willing to provide cofinancing.
kind regards,
Jaap Vink
STRO
Thanks for clearing that up. I would definitely suggest putting that info into the proposal if it isn't already. Especially the cost and sustainability stuff you mention in paragraph 3 of your response.
Best of luck!
Josh
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