Complementary Currencies/BoK EN - Commercial Credit Circuit (C3)

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General Description

C3 is an innovation of the Social Trade Organization (STRO) in cooperation with the World Bank (Inter-American Development Bank), The United Nations (Unido and ILO), the European Commission and the Dutch Ministry of Development Cooperation. C3 is a Business-to-Business complementary currency.

C3 is a money program that increases the liquidity position of Small-Medium Enterprises. SMEs are often confronted with a need to pay their suppliers within a short period of time, whilst their clients have negotiated favorable terms to their payment. In other words, SMEs have to pay now, but will receive only later on. It is often the powerful position of large retailers that is responsible for the situation SMEs are confronted with; they demand to be paid rapidly, but themselves pay as late as possible. As a result SMEs are often in need of short-term debt capital (loans) to pay their suppliers.

In the case of SMEs most equity capital is invested in current assets. SMEs usually have almost no fixed assets. However, most banks require fixed assets as collateral for loans. In addition banks are only interested in long-term loans of significant size. Short-term and small loans are commercially unfeasible. The financial crisis has made them even more cautious. As a consequence, SMEs often find themselves in a precarious situation.

Commercial Credit Circuit is an instrument that combines ‘factoring’ with a payment structure corporate holdings often use (Van Hilten 2009a: 1 & 9). Because factoring and corporate holding’s payment structures are usually not available for SME’s, C3 provides an interesting alternative.

Factoring is a mechanism usually employed by ordinary banks. Company A needs to pay of its debt to company B, but can only do this in multiple installments or after, let’s say 120 days. Company B however, is really in need of working capital in order to pay Company C. With factoring, the bank takes over Company B’s debt-claim towards Company A. Company B receives the whole debt amount at once from the bank. Company A pays the bank in regular installments, with Company B’s collateral as a guarantee to the bank. Conventional factoring is very expensive, and therefore not a serious option for SMEs. Moreover, as we have discussed, SMEs often lack fixed assets that can serve as collateral.

In corporate holdings such as McDonalds, multiple companies (e.g. the cattle farmer, the slaughterhouse, the transport company and the restaurant) are connected to each other like a chain. For convenience of quick transactions, they pay each other with an internal currency, using a current account system. For example the restaurant transfers the money received from its customers directly to the holding. The holding issues like value of internal currency to the restaurant. The restaurant uses this internal currency to pay of its supplier (the slaughterhouse), the slaughterhouse uses it to pay the cattle farmer and the transport company. For the slaughterhouse to buy food for its cattle at a company outside the holding, it approaches the holding to exchange the internal currency for ordinary money. The advantage of this payment structure is that the holding can dispose of a far larger amount of ordinary money at all times. After all no ordinary currency is circulating within its own subsidiary companies. This mechanism has (up to now) not been available to Small-Medium Enterprises.

C3 sets up regional business networks where SME’s pay each other using C3 credit rather than conventional currency. For payment they make use of an internet-based current account. With C3 businesses are able to exchange secured claims on future payments. It means that debt-claims are monetized into a complementary currency, and becomes directly available. It enables businesses to buy products from others now, and pay later. It works as follows: company A obtains C3 work capital from the C3 organization on the basis of a debt-certificate it has to its customers. Only the debt-claim itself is judged by the C3 organization, not the company or its business model as a whole, as is the case when businesses contract a loan at the bank (Van Hilten 2009a: 9). The debt-claims are insured by an insurance company, in case Company A’s customer defaults and will never pay of its debt. Because Company A receives C3 credit rather than conventional currency, it differs from factoring as previously described. Company A uses the C3 credit in turn to pay off its debts at the local supplier. The supplier needs to become part of the C3 network first (that is it has to open a C3 bank account), in order to receive C3 credit. The supplier has no choice but to accept C3, as Company A cannot pay in conventional currency immediately. With C3, debt-claims (and other assets) are liquefied and turned into a medium of exchange on their own.

At all times, the supplier is allowed to exchange its C3 credit for ordinary currency. But, because Supplier B is obliged to pay a fee, it is more attractive for the supplier to spend C3 credit at participating business C within the network rather than converting it to conventional currency to purchase at business D outside the network (Van Hilten 2009a: 9-10). This consequently strengthens the local businesses that are part of the C3 network. With a fee installed, C3 credit keeps circulating within the network and local economic activity is boosted. Moreover, using C3 credit, speeds up circulation of money. After all, multiple payments have taken place whereas the debt-claim is only paid off after 120 days. Now business C cannot find a suitable supplier within the C3 network. It thus decides to exchange its C3 credit for conventional currency. Business C accepts the fee knowing that it would not have attracted Supplier B as its customer if it wasn’t part of the C3 network (Van Hilten 2009a: 8).

In short, the C3 makes it possible for commercial transactions to occur before the money is available. It gives participants the opportunity to continue their activities in the supply chain, without waiting for the money of their clients, by transferring future claims on money as if it was already cash.


Commercial Credit Circuit (C3) is a money program that aims for strengthening the financial position of Small and Medium Enterprises and to strengthen the real economy. SMEs are responsible for up to 50% of all employment, responsible for up to 50% of national income and constitute an important group of pioneers in innovation and sustainability. Hence, SME’s are of vital concern for a solid economy. However, SMEs increasingly face difficulties to survive, which in many cases has to do with a shortage of working capital. A lack of working capital often results in a downward spiral; cost reduction (cutting expenditures on innovation and investment and personnel), worsening competitive advantages, decreasing income, lack of working capital. The C3 network provides SME’s with working capital where ordinary banks and factoring companies fail to do so. By providing working capital SME’s are enabled to directly pay of debts or to purchase and invest. In other words, it speeds up the circulation of money and as such economic activity .

Design Criteria

Support Medium

Just as LETS, Barter and Time Banking, C3 does not involve the use of conventional money but is based on an online bookkeeping system managed by the C3 organization. Hence, C3 is electronic money. Conventional money only comes into play when businesses exchange C3 for conventional currency to buy outside the network. The C3 organization has contracted banks for this purpose. As opposed to LETS, Barter and Time Banking, C3 does not function as a mutual credit system where some businesses need to run depths in order for other businesses to raise a surplus.

Function (medium of exchange, store of value, standard of value)

C3 is invented to speed up exchanges and payments between SME’s and large enterprises. However there are no mechanisms, like a demurrage, that ensure quick expenditure of C3 credit. At the very same time, hoarding C3 credit makes no sense as no interest is received on a C3 bank account. For ease of use, C3 credit is denominated in conventional currency; 1 C3 credit is worth 1 unit of national currency.

Issuing Procedure

All C3 credit is created with turning debt-claims into C3 credit. Hence, C3 credit is backed by future payments of conventional national currency. C3 is thus redeemable for conventional currency. It is off course possible that a business wishes to cash his C3 credit, before the moment that the debt-claims are expired. Thus, the C3-organization has not yet any money readily available. In C3 a contract with a financial institutions for short-term loans will allow the cashing if anything like this occurs. Business wishing to exchange their C3 credit will pay for the interest costs of the short-term loan to bridge that period next to some administrative costs. In reality though, of all the debt-claims the C3 organization owns, a substantial part will have been paid of already. So there’s always some cash money on hand.

Secondly, C3 credit is issued as loans to businesses in need of working capital. It means businesses actually receive C3 credit in advance of receiving income from their clients. The loan is interest free; in case of C3U, STRO charges 1.5% and the insurance company 3% once only.

Cost Recuperation

C3 is a not-for profit initiative, making the costs for operating the C3 network as low as possible. All costs are internally recuperated through various mechanisms First of all, Businesses offering their debt-claims pay for the assessment of their invoices, insuring their invoices and advancing them. In addition a transaction fee, a demurrage (of 0.5% annually in case of Uruguay) and an exchange fee (malus) are installed to generate revenue. In addition STRO receives income for every loan of C3 credit it issues. The exact costs of assessing, insuring and advancing invoices, transaction fees, exchange fees, demurrage and loans vary with every implementation of C3.

Implementation and Origin

The C3 methodology was launched in several Latin American countries as of 2003; Uruguay, Honduras, El Salvador, Costa Rica and Brazil. Currently, the Social Trade Organization is exploring possibilities to launch C3 programs in the US and European countries as well (Van Hilten 2009b).

Especially in Uruguay, C3 is currently in a highly developed stage. On invitation of the Uruguayan national government, C3 will be rolled out on a national level by summer 2010. Uruguay has been one of the most prosperous countries in Latin America in the past decades. However the 2002-3 financial crisis had disastrous effects for the real economy. It resulted in unemployment, bankruptcies, money shortages, and an overall decline of purchasing power. With investment, income often follows suit. But lacking the money to invest, economic activity comes to a standstill. Especially Small Medium Enterprises experienced difficulties to obtain loans from the banks. With the banks attempting to strengthen their own financial position, virtually no money was left for the real economy. In addition, banks are hesitant to issue loans when economic prospects are bleak (Van Hilten 2009: 9). C3 credit is introduced to alleviate national currency shortages and to spur economic activity once more. A very unique aspect of C3U in Uruguay is that all state-owned enterprises (water, electricity, public transport, communication) will accept C3 Credit and that taxes can be paid in C3 credit as well by summer 2010. This makes C3 credit much more acceptable to businesses as a means of payment.

In Porto Alegre (Brazil) the direct motive for introducing C3 credit is the stumbling interest of almost 30% on loans (Van Hilten 2009a: 8). Consequently, a culture emerged where people started to pay in installments to prevent borrowing money. For companies to improve their working capital, they try to pay off their debts as late as possible, and to claim debts immediately (Van Hilten 2009a: 3). Large businesses are far better able to negotiate favorable payment conditions than SME’s. Especially SME’s where confronted with long-term income often paid in installments, but short-term expenditures that needed to be fulfilled at once. C3 was introduced to provide business with an alternative means of payment. Nowadays approximately 1000 businesses joined the C3 Network ‘Compras’.

Impact and Significance

Size and Growth

C3 was initially launched by 2005 in several countries of Honduras, El Salvador, Costa Rica and Porto Alegre (Brazil). A couple of thousand businesses participated in these experiments, and approximately 12.000 small loans were involved. These pilots laid the foundation for the first serious implementation of C3 in Uruguay, after positive signs in Brazil’s C3 network Compras. C3U will be launched by the summer of 2010. It potentially reaches 10.000 SMEs throughout the country. An initial guarantee fund of US$ 15 million (for the first 6 months of operation) and eventually US$ 250 million from the WorldBank is in place to back debt-claims.

Achievements and Impediments

Because the implementation of C3 in various countries of South-America are all test cases and small in scale, it’s virtually impossible to make sensible statements on the consequences for the economy. C3U will in this regard be important as it will have more far reaching implications for the national economy. It is expected that C3U will be an important impulse for the economy. Strong economic revival is expected to occur through a better financial position of Small Medium Enterprises resulting in increasing economic activity. Money is the fuel that stimulates economic activity. C3 credit can be an instrument to provide the local economy of the fuel it needs. Coming years will show to which extent this truly is the case.


Van Hilten, R. (2009a) Commercial Credit Circuit Reader. Utrecht Social Trade Organization. (In Dutch)

Van Hilten, R. (2009b) “Commercial Credit Circuit” om het MKB Bedrijfsleven te Stimuleren. Utrecht: Social Trade Organization. (In Dutch)

Pekelsma, S. (2009) Urban Economies Often Aren’t Resilient Enough. European Union Knowledge Network (EUKN). [1]