SMEs In El Salvador To Be Offered Crypto-Based Loans
After making bitcoin a legal currency of the country, the government of the small country of El Salvador now will be offering $10 million in crypto-based loans to the country’s small and medium-sized companies (SMEs) starting the first quarter of 2022.
Initially, El Salvador’s National Commission for Micro and Small Enterprises (Conamype) will be provided U.S. dollar funding by Acumen, a Solana-based lending and borrowing platform. Conamype, a government agency, will then allocate the funds received to local informal entrepreneurs and the country’s self-employed workers, said Conamype’s president Paul Steiner.
An annual interest rate of between 6% and 7% will be attached to the loans to be given by Acumen. However, Acumen’s project manager Andrea Gómez said that the interest rate could reach as high as 10%.
According to Steiner, about 876% of all the firms of El Salvador are part of the country’s informal sector and hence have very limited access to the country’s banking system for loans. Among those companies, 98% of the firms depend on debt from unregistered lenders who charge as much as 2,300% as annual interest rates on the loans that they provide, Steiner added.
“They are loan sharks charging between 20% and 25% per month. That is what we want to avoid,” Steiner said.
The government of the country had been in negotiations with Acumen since October last year after the Central American country adopted bitcoin as a legal tender, according to Steiner. The government also held negotiations with different crypto lending platforms at the same time to ascertain platforms that can be used to provide crypto loans to SMEs of El Salvador, he said. The value of the agreements could be as much as $200 million if the deals are approved, he said.
On its part, crypto will be converted to stablecoins – USDC or tether, by Acumen, and then send payment to Conamype in U.S. dollars, which will deliver U.S. dollars to Salvadoran SMEs and entrepreneurs. Steiner said that the transfer would be made via the state-owned bank Banco Hipotecario.
Steiner said that the SMEs receiving the loans would have to pay back interest and capital in U.S. dollars, and the government would then make payments to Acumen in U.S. dollars.
Gomez, however, said that details of the agreement are still being worked out by the government of El Salvador and Acumen. The final financial product will be ready to be offered to SMEs by the first quarter of the current year.
According to Gomez, the Central Bank of El Salvador had recognized Acumen as a lender in November of 2021 and added that the platform already has 15,000 users.
Also Read: Lunar Way aims to Upgrade itself with Thought Machine’s Cloud-based Technology