Introducing CREDERE: A new solution using open data to improve the financial inclusion of small businesses in public procurement markets
This guest post is by Lindsey Marchessault and Oscar Hernandez from the Open Contracting Partnership, an organization supporting transformational public procurement reform in more than 60 countries around the world.
Public contracts are a unique opportunity to stimulate economic development and grow small businesses. But complex procedures, the need for guarantees and long payment schedules, and lack of access to bid information make public contracts unattractive for small businesses, especially for women-owned businesses.
What is CREDERE?
CREDERE is a new solution designed to give small businesses access to the financial services they need in order to confidently bid on and deliver government contracts. In our previous post, we wrote about how the procurement market remains impenetrable to many small businesses that would face liquidity issues if asked to put up guarantees or be paid late, as is frequently the case with government buyers. Open Contracting Partnership designed and developed CREDERE over the course of the last year in close collaboration with the City of Bogotá, financial institutions, and small businesses themselves.
This tool allows small businesses awarded public contracts to automatically obtain access to credit products — as soon as their contract is awarded — through email communication. They can browse and compare financial products to choose the most appropriate for their needs. CREDERE streamlines the subsequent credit application process by pre-populating information from open public procurement data. Small businesses can then upload additional supporting documents and submit their application directly to the financial institution for review. As a result, CREDERE streamlines the credit application process for small businesses.
CREDERE launched in Bogotá in early October. Within the first hour of the tool being live, the first application for credit from a small business was received. So far, 1,267 small businesses have been contacted, and 82 have accessed credit applications (eight of which are women-led). On average, businesses are requesting US$40,000.
“We are thrilled with the launch of CREDERE, which will provide micro-, small, and medium-sized enterprises contracting with the government the opportunity to access financing … Currently, only 34% of companies use Colombia’s electronic public procurement system. We must continue working to strengthen the capabilities of these businesses, and CREDERE can serve as the vehicle for companies to secure financing for their proposals and projects in public procurement.”
— Maria Alejandra, Executive Director of the Colombian Association of Micro, Small, and Medium-Sized Enterprises in Bogotá and Cundinamarca
Why pilot CREDERE in Colombia?
Colombia’s annual public procurement market stands at about US$35.5 billion. Recent legislative changes have brought significant shifts to the country’s procurement market, with aims to better enable small business participation. For example, in 2020, a law mandated allocating 30% of food spending to local vendors, supporting small rural producers. In 2021, an entrepreneurship law introduced incentives to boost small and women-owned business participation. In 2022, these efforts translated into US$3.8 billion in contracts awarded to small and medium-sized businesses, a 30% increase from the previous year.
Additionally, Colombia’s national procurement system uses a schema called the Open Contracting Data Standard, pioneered by our organization, that helps governments to publicly disclose the most important data about their contracts, such as bidder information, contract values, or when deals were awarded and signed. CREDERE taps into that open data to identify all businesses awarded a public contract. Because this information is updated often, we can contact businesses soon after they win a contract.
The City of Bogotá is committed to increasing the number of small businesses and women-led businesses among its suppliers. To achieve this, the city has improved the efficiency and transparency of its procurement system and is encouraging small businesses to bid for tenders. Bogotá publishes open data about its contract opportunities and awards and has started to measure if participating companies are micro, small, or women-led.
“When we opened the data on district capital procurement and began our analysis, we noticed that the number of SMEs contracting with the district was quite low. It prompted us to investigate why SMEs were not contracting with us, even though they met the requirements and had strong financial statements. We realized that, at times, they faced cash flow challenges. In partnership with the Open Contracting Partnership, we decided to support the quest for mechanisms to enhance SME inclusion in public procurement with a gender focus. In the district, our goal is to enable small businesses to contract with district public entities, minimizing barriers to access, such as cash flow. This is precisely what the new tool designed by civil society in the Open Contracting Partnership accomplishes. The District is committed to continuing our efforts to ensure that SMEs are informed about the processes opening up for their participation, enabling their inclusion in the public procurement of the Capital District.”
— Patricia Rincón, Deputy Secretary for Institutional Strengthening, Office of the Mayor of Bogotá
In addition, Colombia is home to a variety of financial institutions keen to support inclusive growth for small businesses. Latin American fintech company Clara, which provides a payments solution for businesses, was the first tech company to join CREDERE and offer credit cards through the platform.
“The public procurement market offers substantial opportunities for business development. From the project’s inception, we recognized that Clara, serving businesses of all sizes, could offer a compelling solution through CREDERE to cater to the needs of small enterprises providing goods and services to the government. CREDERE streamlines the credit application process by providing a digital solution that leverages essential business data for credit applications.”
— Leonardo Ramos, Colombia Country Manager for Clara
What have we learned so far?
When it comes to credit and financial services, we’ve learned that the most important thing is to build trust. That is why we named our tool credere, the Latin word for trust.
We’ve learned that gaining the trust of small businesses, in addition to financial and government institutions, is not only about developing the tool. We also need to invest in communications to introduce and explain the tool. And it’s not only about trusting CREDERE but also building trust between these stakeholders. Our partnership with the Mastercard team in Colombia and the support from the Strive Community have been essential in this process.
Open data can be a powerful enabler of innovative solutions that foster economic development. CREDERE is only possible because Colombia publishes high-quality and timely open procurement data, including disaggregated information about micro- and small businesses and women-led bidders and suppliers.
Today, more than 30 governments around the world publish open data using the Open Contracting Data Standard. We are excited by the potential to use this data to scale solutions like CREDERE and other innovative approaches that address pressing social, economic, and environmental challenges.
What’s next for CREDERE?
CREDERE is now in its pilot phase. We are monitoring and evaluating how small businesses and financial institutions are using the tool and documenting feedback and learning. We will be documenting the uptake of the solution by small businesses and the value of the credit they are obtaining, among other indicators of the project. Next year, we hope to use the feedback to improve features and functionalities. We aim to scale CREDERE by engaging and onboarding more financial institutions, adding more financial products, and expanding its geographic scope.
