El Salvador government exploring low-interest loans backed by Bitcoin
The Salvadoran government is looking to create a Bitcoin-backed loan item for micro and small businesses across the country.
It's full steam ahead for El Salvador's Bitcoinization. The next point on the orange agenda is in providing low-interest loans backed by Bitcoin (BTC) to small and micro-businesses.
While the details of the BTC loans are presently not released, Monica Taher, an advisor for the Government of El Salvador, was straight talking in a Facebook Live audio held yesterday. The conversation was called "Bitcoin loans with lower interest fees."
Paul Steiner the President of CONAMYPE (the national institute for small and micro-businesses) shared that the implementation of loans would work with the government-created EL Chivo wallet.
El Salvador's business scene is dominated by small and micro businesses and Bitcoin-backed loans are an opportunity to remediate the situation Steiner illustrated.
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.
He refers to the model that a $100 loan taken out by a micro-business will normally come with terms of full repayment in 20 days while the interest rate is $15 per day. Sometimes, the yearly interest rate for such loans "exceeds 10,000%"
The interest rate given by BTC-backed loans would be lower than that of informal lenders, loan sharks, and banks.
Andrea Martia Gomez, a project manager for Acumen, a Defi lending protocol shared that "some crypto enthusiasts in EL Salvador are already using a crypto solution like Defi as they offer ease of use and a higher interest rate than banks."
Alessandro cecere, community manager for Ledn, a Canadian Bitcoin company also participated in the conversation. Ledn recently launched BTC-backed mortgages. He asks El Salvador might copy their model and assume that Bitcoin may be considered as insurance for mortgages in the future.
Steiner was open to the discussion and hopeful about the future of Bitcoin. his priority is to improve the business environment for SMEs. When prompted in the chatbox about loans for other avenues or housing, Monica Taher reiterated that the loan product would only be available to small and micro businesses for the moment. "We will discuss mortgages later."
Steiner summed up the target when referring to the challenges that micro-businesses face in El Salvador:
Businesses need an entry point for financing: Bitcoin is that opportunity.