C3: digital currency reinforcing sales, multiplier and credit for SMEs
C3: digital currency to boost credit and trade for SMEs using internet, cards, and mobile phones as payment channels. SMEs, big private and public companies spend units, allowing mutual credit and a higher multiplier. After pilot in Brazil, IDB, Unido and ILO support introduction C3 in Uruguay and other countries.
About You
About You
First Name
Jaap
Last Name
Vink
Website
Your Organization
Social Trade Organisation
Country
Netherlands, UT
About Your Organization
Organization Name
Social Trade Organisation
Organization Website
Organization Phone
+31-302314314
Organization Address
Oudegracht 42, 3511AR Utrecht
Organization Country
Netherlands
Organization Type
Non-profit/NGO/Citizen-sector Organization
The information you provide here will be used to fill in any parts of your profile that have been left blank, such as interests, organization information, and website. No contact information will be made public. Please uncheck here if you do not want this to happen..
Your solution
Name Your solution
C3: digital currency reinforcing sales, multiplier and credit for SMEs
Describe Your Solution
C3: digital currency to boost credit and trade for SMEs using internet, cards, and mobile phones as payment channels. SMEs, big private and public companies spend units, allowing mutual credit and a higher multiplier. After pilot in Brazil, IDB, Unido and ILO support introduction C3 in Uruguay and other countries.
Country your work focuses on
If multiple countries, please list them here. If your solution targets an entire region, please select it below
C3 is applicable worldwide, but implementation is now focused on Latin-America. After a pilot in Brazil and preparing nationwide
Region(s) your solution focuses on:
Latin America and the Caribbean.
Range of turnover in your target firms, in USD
Less than $1 Million.
Average turnover in USD of your target firm
$750,000
Number of employees in your target firms
5-24.
Average number of employees of your target firm
10
Specify the size, average and range of expected loans or investments in each target firm
For the 1st year in Uruguay we forecast:
· Size of expected loans: Between USD 1.000 and USD 50,000.
· Average of expected loans: USD 3.000-10,000
What stage is your solution in?
Operating for 1‐5 years
Innovation
What makes your innovative solution unique?
The ‘Circuit for Commercial Credit’ (C3) is unique because it joins large public institutions and private SMEs at the same financial transaction network by using an own means of payment (digital units) that under certain conditions can be converted to money. Advantages are cheap credit, increasing sales, conserving cash and making use of excess production capacity.
C3 uses high-tech channels (Internet, cell phones, POS/cards) supported by proved open source platforms to provide modern financial services at a very cost-efficient way.
The C3 model itself is an innovative approach to public e-procurement: governments can do immediate payments to their suppliers (instead of after 3 to 6 months, like often happens) using the digital currency, allowing SMEs to better compete with larger providers that can financially support long term payments.
It is also an innovative way to stimulate local development, by redirecting local purchasing power of consumers towards goods and services produced by local businesses. The C3 model can be tuned to include an exchanging fee for conversion to national currency that can be set in such a way that it diminishes the longer the units are circulating or going from hand to hand in the local economy (in this way increasing the multiplier effect of the purchasing power).
Additional innovations intrinsic to the model are: straightforward money traceability (to prevent money laundering), full transparency (for tax supervision), purchasing power security (avoid robbery reasons), and stimulation of formalization (condition to join C3).
How does your proposed innovation leverage public intervention in catalyzing private SME finance?
A government can support C3-projects in several ways:
1. Channeling public expenditures (e.g. local stimulation programs, welfare, payments of its local SME suppliers, etc.) through a C3-network. These expenditures will be converted to units and then enter a semi-closed circuit, guaranteeing the circulation of the amount among the participating SMEs. This doesn’t cost the government any extra money, because the money of the public expenditures is converted to units and this money is then available when SMEs in a later stage want to convert their units back to money.
2. Accepting units to pay for taxes. This will increase enormously the acceptance of units by companies because they know that at least they can always spend their units at the tax office. The government can spend the units for the expenditures mentioned under the previous point.
3. The government can pay its SME suppliers immediately in units, while normally most governments take 3-6 months to pay their suppliers. So now suppliers receive direct payment in units for their products. They can spend the units in the C3 network paying for services or products from public/private members and the units can be converted the moment the government pays its bills in cash to the C3 network.
4. (Local) Governments can make the initial investments to set-up a C3 in their region. The initial investment can be paid back by the sources of income for a C3 described under question 7.
5. (Local) Governments can provide a guarantee fund. As soon as a C3 is running, it can give its SME members credit in units that can be paid back in units or money. The credits in units are backed by a guarantee fund: a guarantee to get a loan when needed that only is used when a member of the C3 network wants to convert its units before it has paid back the loan. The costs of a guarantee of a loan are much lower than the loan itself resulting in low costs loans for C3 members.
When a C3 member wants to convert units for money, he has to pay the costs of lending money at a bank until the moment the loan in units is paid back so the bank can be paid back.
Because only a part of the units are converted for money before loans in units are paid back, this fund has a large leverage (in Uruguay it is estimated that 5 times as much loans in units can be given than the amount of money in the guarantee fund).
What barriers does your proposed solution address?
Asymmetry of information, Informality, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries, High transaction costs for financial intermediaries to serve SMEs, Lack of competition / incentives for financial intermediaries to serve SMEs, Underdeveloped local capital markets (term local currency funding, exit options for SME equity), General barriers to SME development related to investment climate, Specific barriers to fragile and weak states.
If you checked any of these barriers, describe how your solution addresses them
Asymmetry of information is targeted by providing all C3 members -regardless their size- access to the same high level financial services (online-banking, mobile-banking and home-banking tools based on Internet and cell-phone channels) usually provided only by large banks. This way, private small SMEs can interact at the same level (pay and receive payments) with large public and private companies.
As being formal is a requirement for network belonging, the model itself encourages formalization. Because all informal companies that enter into the formal economy become potential bank customers in the future, all C3 network stakeholders are interested in increasing formal practices. For example: The C3 administration also provides training and market services to allow SMEs develop their business and generate additional transactions.
Considering that the ICT based currency management has significantly reduced costs compared to traditional money and traditional banking structures required for its management, C3 members have access to cheaper capital credits funded by MFIs that join the network. This scenario allows smaller organizations (like productive cooperatives) to evolve themselves into financial institutions (small MFIs) and allowing them to leverage the C3 platform to provide specific products that fit specific needs of their current customers.
Additionally, one of the more distinguishable and innovative aspects of the C3 model are its instruments to incentive local transactions. The same way it can be tuned to penalize conversion of units to national currency (to stimulate circulation), it can also be configured to incentive local development by giving incentives to use the purchasing power locally instead of allowing it go away promptly: unlike normal money, the C3 transaction network can easily erect temporary protective trade barriers for specifically targeted regions, which have more unused capacity, unemployment and poverty than others to help them develop local capital markets and allowing local SMEs to better compete in a fairer ground play.
Impact
Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact
A pilot of a Circuit of Commercial Credit (C3) named Circuito CompRaS is already fully operational in the Southern State of Brazil, Rio Grande do Sul. The Circuit has been introduced and set up in the Brazilian market by the local Business Association CompRaS providing a tool for business development and credit injection to the participating SMEs. The Brazilian C3 is operational since the end of 2005, up to now showing an average growth in terms of members of 300 businesses and / or consumers per year. In July 2010 the payment exchange system attended in total 2,239 members (in 2010 there was a significant growth of nearly 1000 new participants in the first semester of the year). The Circuito CompRaS counts with the partnership of several financial intermediaries as Microfinance Institutions, the biggest national credit cooperative (SICREDI) and the state Insurance Agency (GarantiaRS). These financial institutions are responsible for the commercial credit tool of the Circuit, including client analysis, lending standards, and customer advisory service. The amount of released commercial credits within the Circuito CompRaS has grown steadily since 2007 with $60,000, in 2008 with $130,000 and in 2009 with $220,000. Up to July 2010 the financial intermediaries together liberated the amount of $170,000.
The project has concentrated its activity on the South Region of the capital Porto Alegre, where it has strengthened the local consciousness of the participating SMEs, provided cheap credit, increased the multiplier of local purchasing power, building up new business linkages with neighboring companies, and joining forces against e.g. a new shopping Mall and big chains.
The Uruguayan Government has adopted the C3 model (http://www.c3uruguay.com.uy/index.php?option=com_content&view=article&id... ). It is under implementation process and will be operative during 2010. This C3 model includes all the public institutions, in addition to private SMEs and MFIs. This project is fully aligned to the Economy Ministry vision and National Government strategies because looks for introducing technology-based means of exchange on the local economy (http://www.elpais.com.uy/100802/pecono-505585/economia/las-14-propuestas... ).
Although not started yet, the mere fact that a government prepares the implementation of a C3, can be considered a success in itself. The expected impact of C3-Uruguay will be mentioned in question 11-13.
How many firms do you expect to reach?
The number of firms a C3 can reach, depends on the size of the target region where the C3 will be implemented. For C3-Uruguay, the expectations are:
1st year: 1.500 loan applicants
2nd year: 3.120 loan applicants
3rd year: 3.744 loan applicants
What is the volume of private SME finance you aim to catalyze?
Based on the Uruguayan context described above:
1st year: USD 4.500.000 loan portfolio
2nd year: USD 9.360.000 loan portfolio
3rd year: USD 12.355.200 loan portfolio
What time frame will be required to reach these targets?
Continuing with the same Uruguayan context, projections shows that break-even point will be reached during the second year of operations.
Does your solution seek to have an impact on public policy?
Yes
What would prevent your solution from being a success?
1. Lack of support by Government
Initially, public institutions had doubts about using an internal mean of payment. However, our experience is that after explaining the advantages and benefits of the C3 model, Politics and Public Institution’s managers turn from sceptical into enthusiastic. The C3 model is now being strongly promoted by the Uruguayan central government and accepted by the Central Bank.
2. Inaccessibility of payment channels
No internet access, no mobile phone coverage or no electric supply for use of payment cards by Point of Sale (POS) technology. However, it’s seldom the case that any of the above three mentioned options for reaching a C3 is available.
3. Low penetration of SMEs
Units are not accepted widely or only a few SMEs participate in the network. This problem can be solved by participation of (local) governments that accept the units as payment for taxes or by offering clear advantages for participating SMEs such as cheaper credit, increased sales or access to financial services.
4. Not enough commitment from MFI’s.
The model has a guarantee fund that allows them to offer credits with controlled risks.
5. Unattractiveness of credit in units compared to credits in the market.
The market must be under permanent revision and, in addition to that, the C3 model has many promotional incentives to stimulate the participants to use the transaction network.
This Entry is about (Issues)
Describe the social impact of your innovation. Please include both numbers and stories as evidence of this impact
The total transactions within the Circuit of Commercial Credit in Brazil reached more than $1.5 million up to now, with a growing tendencies towards further internal circulation boosting the local economy These numbers can be considered additional turnover of the participating SME, as they wouldn’t have been realized these sales outside the system, being these about spare capacity of the companies. The annual evaluations realized among the beneficiaries, shows that the participating SMEs are quite positive about the offered services and the obtained results, more than 70% stating that they believe the C3 brought new business opportunities and strengthened their position in the local market.
The target of a Circuit of Commercial Credit is not the single business itself, but the local community as a whole, which is the essence of the approach designed by STRO. The money that enters the community, should circulate more among the economic agents before leaving the community again. As consequence the local economy organizes itself better, raises its productivity and creates work and income. The potential of the community, based on its SME, Will be optimized resulting in overall better social, economic and environmental indicators.
Besides of this, as the total amount of released credit up to now demonstrates ($600,000) the Circuit of Commercial Credits helps to fight the liquidity problem most SME are confronting as the conditions to obtain credits are very restricted for most businesses, besides of being a complex and expensive process in most cases.
An example how C3-CompRaS helps SMEs, is the case of Flash Motos, a courier service by motor. Flash Motos has 15 employees and is member of CompRaS since December 2009. Thanks to CompRaS they have already got a number of new clients, that spend their units at their company.
Sustainability
List all the funding sources that are required for the sustainability of this solution
Initial short-term investments are needed for the set-up of the C3-network, which includes articulation among the most important stakeholders as Government, significant big companies, business chambers / associations, financial intermediaries; technical configurations and installations; capacity building of project team, infra-structural adjustments. Furthermore funding is needed for a guarantee fund which serves as backing of the credits in units. In mid-term the arising expenses are limited to maintain the project operational as e.g. project team, office, help-desk, server among others. In the long run additional costs may arise as for innovations in the Software (programming), expansion of the target-group or region.
The sources for this funding can be public, on a national level (government of Uruguay in C3U) or international level (Interamerican Development Bank) and/or private. The earning mechanism explained in question 18 make in the midterm the C3 sustainable. These earning can be used to payback investments made in the start-up phase.
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
The C3 offers different ways to earn back the initial investments and the operational costs:
- Liquidity tax: a tax on positive accounts in units (liquidity tax) to stimulate fast spending of the units within the network, hereby increasing the multiplier effect on the local economy
- transaction tax: a fee on each transaction within the network
- fees on the credits in units
- a conversion fee when exchanging units for money. This also stimulated longer circulating of the units within the local economy.
Each C3 can chose which of the above mentioned fees and taxes it will use. C3U applies a fee on the credits in units.
The C3 model deployed in Uruguay will reach the break-even point at the second year. This is possible because the IMF's credit cost have a percentage that allows financial gains; a particular case of earning is the Conversions fees (cost charged for taking units out of the system by converting digital currency to cash) provide an additional income (although that practice is never stimulated). In addition to that, a high-quality management of the guarantee fund will provide earnings to the system.
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. After the break-even point, 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.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
A loss of a main part of the (private) funding for a C3, would mean that the C3 has to focus on the main activities to get a C3 started and keep running. This means that all initial short-term investments as mentioned in question 17 still would be done. However, this would mean that here is no money available for a guarantee fund. In that case, still credits in units can be given to SMEs, but the units that come into circulation this way can only be converted back to money after (and not before in case of a guarantee fund) a SME has paid back its loan so money is available for conversion. If units only can be converted to money after a certain time, it’s less attractive to accept them as a means of payment. So less new SMEs will become member of the network as compared to a situation with full funding. Nevertheless, even with the limitation of conversion, the units still mean extra income for SME, so some of them will accept them as means of payment and anyway all SME with credits will happily accept the units as payment because they can pay back their loans with credits.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
- Local governments: a large scale model –like the Uruguay experience- requires official support.
- Public Institutions: allow SMEs to have more possibilities to spend their units.
- Tax Office: Offers for all participants a possibility to spend their units and increases strongly the credibility of the network.
- MFIs: They are the 1st level loan providers and they can give the accessibility needed.
- Official National Bank: Helps to provide security and credibility to the users
Are there non-financial issues that could threaten the sustainability of your proposed solution?
- Target group (SME) do not use system, do not understand advantages, are too conservative for innovations
- Local economy shows a very high growth with abundant possibilities for SME to get credit, sell their products and access modern banking services. In that case, the use of conventional money will be preferred above digital units.
- The C3 transaction network has low promotion and marketing.
- Few public institutions participation.
Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically
One of the most beautiful aspects of the C3 platform is that is it designed for being fully scalable. Geographical up scaling can be achieved by joining two or more existing C3s; for example: two local community C3 with focus in rural areas can be joined to start a larger regional C3 transaction network,
and many city-scale C3 can be connected to run a wider network. Scalability at the inter-national level targets to replicate successful nationwide experiences onto other countries, like it is currently happening in Latin-American –many countries (Colombia, Paraguay and Ecuador, among
others) already showed interest at the higher governmental levels to replicate the Uruguayan C3U experience at their own countries. These countries lack the funding (sometimes) and expertise to do so. STRO targets to set up a C3 training institute in Uruguay where employees of organizations and governments interested in implementing a C3, can do internships at C3U when running and do courses on the ins and outs of the C3 methodology. In this center, also the Cyclos software would be tailored to specific circumstances of new C3s.
There is no restriction in terms of sector approach. On the contrary, a C3 only functions by including whole value production chains and all possible productive and service sectors.
In addition, the C3 is further developed to be used for specific target groups, such as migrants and their families. In this C3-model, migrants send remittances in units to their families in their home country so that the remittances are spent in the local economy. Please see the attachment: C3 and remittances
| Attachment | Size |
|---|---|
| What_is_a_C3.JPG | 27.12 KB |
- Login to post new content in this forum.
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
Post new comment