El Salvador plans to offer BTC backed loans for SMEs

A significant number of El Salvador's 1.2 million SMEs are prey to loan sharks for funding

Bitcoin logo represented on a gold coin, stacked in front of the El Salvador flag                                 
The aim is to undercut sharks whose annual interest rates can exceed 10,000% – Photo: Alamy
                                

The El Salvador government has announced it plans to offer small and medium-sized enterprises (SMEs) $10m (£7.36m) in low-interest loans backed by bitcoin (BTC) in the first quarter of 2022.

Mónica Taher, technological and economic international affairs director for the government of El Salvador, held a Facebook Live audio room on the 21 January called “Bitcoin loans with lower interest rates” explaining this news.

Paul Steiner, president of CONAMYPE (the national institute for small and micro-businesses), said that the loans will work with the Chivo wallet. The Chivo wallet is used to support BTC payments in El Salvador.

 Solana-based borrowing and lending platform Acumen will be providing CONAMYPE with US dollar funding for the loans.

The Acumen loans will have an annual interest rate of 6% to 7%, however this number could reach up to 10%.

El Salvador’s landscape is dominated by SMEs

El Salvador’s business landscape is filled with SMEs that rely on loan sharks to finance their business.

Steiner said: “El Salvador has roughly 1.2 million businesses in the country. Roughly 66% are micro-businesses or ‘subsistence’ businesses. Over 90% of micro-businesses are self-funded via informal loans or loan sharks.”

The president of CONAMYPE gave an example that a $100 ($73) loan taken out by a small business can require full repayment within 20 days, with interest racking up at a rate of $15 (£11) a day.

In certain cases, the annual interest rate for such loans can “exceed 10,000%”. The BTC-backed loans will offer lower interest rates than this.

BTC backed mortgages?

During the Facebook Live audio room Taher was asked about loans for other purposes, including housing. She made it clear that the loans would only be available to SMEs for the time being and said: “We will discuss mortgages later.”

Steiner was optimistic regarding the future of BTC but right now his priority is to improve the business environment for SMEs.

However, Steiner said: “Businesses need an entry point for financing; Bitcoin is that opportunity.”

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