Loans

El Salvador explores low-interest loans backed by Bitcoin

El Salvador explores low-interest loans backed by Bitcoin
Written by Publishing Team

You have the bitcoins in El Salvador in full force. The next point on the orange agenda is to offer low-interest loans backed by Bitcoin (BTC) to small and micro businesses.

While the details of the BTC loan are currently undisclosed, Monica Tahir, Director of International Technological and Economic Affairs at the El Salvador government, held a podcast on Facebook Live yesterday, called “Low-Rate Bitcoin Loans.”

Government advisor Monica Taher told Cointelegraph:

Bitcoin microloans will provide access to digital money for the unbanked while helping them establish a credit history. El Salvador’s economy will be boosted by empowering its small businesses.”

Paul Steiner, President of CONAMYPE (National Institute for Small and Micro Enterprises), said the implementation of the loans would work with the El Chivo portfolio established by the government.

Small and micro businesses dominate the business landscape in El Salvador, and Bitcoin-backed loans present an opportunity to fix the situation. Steiner explained:

El Salvador has approximately 1.2 million companies in the country. Approximately 66% of businesses are small businesses or “subsistence” businesses. More than 90% of small businesses are self-financed via informal loans or loans.”

He cited the example that a $100 loan taken by a small business usually comes with terms of full repayment in 20 days, while the interest rate can be as high as $15 a day. In some cases, the annual interest rate for these loans “exceeds 10,000%”.

Ultimately, the interest rate offered by bitcoin-backed loans will be lower than the interest rate of informal lenders, sharks, and banks.

Andrea María Gómez, Project Manager for Acumen – Decentralized Finance Lending (DeFi) Protocol – shared that “some crypto enthusiasts in El Salvador are already using crypto solutions like DeFi because they offer ease of use and a higher interest rate than banks.”

Related: Bitcoin wallet in El Salvador has 4 million users in partnership with Netki

Also participating in the discussion was Alessandro Cesser, Community Manager at Ledn – a Canadian Bitcoin company -. Ledn recently launched a BTC-backed home loan. He wondered whether El Salvador might copy the company’s example and whether bitcoin could be seen as collateral for future mortgages.

Steiner was open to discussion and optimistic about the future of Bitcoin. However, his priority is to improve the business environment for small and medium-sized enterprises. When asked in the chat box about other road loans or housing, Taher reiterated that the loan product would only be available to small and micro businesses for the time being: “We’ll discuss mortgages later.”

Steiner summed up the vision when referring to the challenges facing small businesses in El Salvador:

“Businesses need an entry point for funding: Bitcoin is that opportunity.”