El Salvador explores low-interest bitcoin-backed loans
It’s full steam ahead for the bitcoinization of El Salvador. Next on the orange agenda is to provide low-interest bitcoin (BTC)-backed loans to small and micro businesses.
While details of the BTC loans are currently undisclosed, Mónica Taher, Director of International Technology and Economic Affairs for the Government of El Salvador, tenuous a Facebook Live audio room yesterday called “Bitcoin Loans with Lower Interest Rates”.
Government adviser Mónica Taher told Cointelegraph:
“Small bitcoin loans will provide access to digital cash for the unbanked while helping them build a credit history. El Salvador’s economy will grow stronger by empowering its small businesses.
Paul Steiner, president of CONAMYPE (the national institute for small and micro-enterprises), said the set-up of loans would work with the government-created El Chivo wallet.
El Salvador’s business landscape is dominated by small and micro businesses, and Bitcoin-backed loans are an opportunity to remedy the situation. Steiner illustrated:
“El Salvador has approximately 1.2 million businesses in the country. About 66% are micro or “subsistence” enterprises. More than 90% of micro-enterprises are self-financing through informal loans or loan sharks.
He cited the example that a $100 loan taken out by a micro-enterprise will usually have terms of full repayment in 20 days, while the interest rate could be as high as $15 per day. In some cases, the annual interest rate on these loans “exceeds 10,000%”.
Ultimately, the interest rate provided by BTC-backed loans would be lower than informal lenders, loan sharks, and banks.
Andrea María Gómez, project manager for Acumen – a decentralized finance (DeFi) lending protocol – shared that “some crypto enthusiasts in El Salvador are already using crypto solutions such as DeFi because they offer ease of use and a higher interest rate than banks.”
Related: El Salvador’s Bitcoin Wallet Onboards 4 Million Users With Netki Partnership
Alessandro Cecere, community manager for Ledn – a Canadian bitcoin company – also participated in the discussion. Ledn recently launched BTC-backed mortgages. He asked if El Salvador could copy the company’s example and if Bitcoin could be considered collateral for mortgages in the future.
Steiner was open to discussion and optimistic about Bitcoin’s future. However, its priority is to improve the business environment for small and medium enterprises. When prompted in the chat box about loans for other avenues or housing, Taher reiterated that the loan product would only be available for small and micro businesses for the time being: “We will discuss mortgages later”.
Steiner summed up the vision by referring to the challenges faced by micro-enterprises in El Salvador:
“Companies need an entry point for funding: Bitcoin is that opportunity.”