In Brief:
- El Salvador joined hands with Acumen to offer crypto-based loans to SMEs.
- The annual interest rate on the loans will be 6% to 7%, with a chance of it rising to 10%.
- Salvadorans will pay capital and interest in US dollars, and the government will return US dollars to Acumen.
El Salvador is planning to offer crypto-based loans to small and micro businesses(SMEs) in the country.
Mónica Taher, technological and economic international affairs director for the government of El Salvador, announced the plans in a Facebook Live audio room.
Taher stated, “The Bitcoin small loans will provide access to digital money for the unbanked while helping them create a credit history. El Salvador’s economy will strengthen by empowering its small businesses.”
The nation is collaborating with Solana-based lending platform Acumen to facilitate loans for El Salvador’s National Commission for Micro and Small Enterprises(Conamype).
Conamype is a government organization that provides funding to local informal business owners and self-employed workers.
With this partnership, the government aims to offer $10 million in crypto loans in the first quarter of 2022.
According to Acumen’s project manager, Andrea Gómez, the annual interest rate on the loans will be 6% to 7%, with a chance of it rising to 10%.
According to Conamype’s president, Paul Steiner, 86% of businesses in El Salvador function in the informal sector and do not have access to banking services
Among them, 98% rely on unregistered lenders who offer loans at average annual interest rates of 2,300 percent.
Acumen will convert cryptocurrencies to stablecoins, such as USDC or tether, and send US dollars to Conamype, which will then distribute the loans to Salvadoran businesses and entrepreneurs.
The distribution will be done through the state-owned bank Banco Hipotecario.
Salvadorans, on the other hand, will pay capital and interest in US dollars, and the government will return US dollars to Acumen.
Acumen presently has 15,000 users, according to Gómez, and it was designated as a Central Bank of El Salvador lender in November 2021.
The crypto loans are the latest move by El Salvador’s President Nayib Bukele, to mainstream crypto in the nation, which declared bitcoin legal tender in September. Soon after, he announced plans to build the world’s first “Bitcoin City,” which would mine bitcoin using geothermal energy from a volcano. Recently the nation announced it is drafting 20 bills to send to Congress to establish a legal framework for the bitcoin bonds.
