El Salvador to offer crypto-based loans to SMEs
The government of El Salvador reportedly has plans to offer small and medium sized businesses (SMEs) crypto loans.
El Salvador’s National Commission for Micro and Small Enterprises (Conamype) plans to offer SMEs $10m in crypto-based loans in the first quarter of 2022, Coindesk first reported.
Acumen, a Solana-based lending and borrowing platform, will provide US dollar funding to Conamype which will loan Bitcoin to businesses at an annual interest rate that could rise as high as ten per cent.
Acumen and Monica Taher, a government adviser in El Salvador, took to Twitter to share the news. Taher tweeted: “Bitcoin low-interest-rate loans for El Salvador’s small businesses thanks to the country’s Small Business Administration and Acumen, a defi protocol.”
A major impetus for the project, according to Conamype president Paul Steiner, is that 86 per cent of the companies in El Salvador do not have access to banking services and operate informally. An eye-watering 98 per cent of the country’s unbanked businesses rely on unregistered lenders offering annual interest rates of 2,300 per cent on average.
“They are loan sharks charging between 20 per cent and 25 per cent per month. That is what we want to avoid,” Steiner told Coindesk.
The Acumen protocol uses algorithmically set interest rates to enable open financial applications. The project works by creating decentralized money markets, which are pools of assets with algorithmically set interest rates based on the supply and demand of loanable funds.
Users who supply assets to pools can earn a yield from lending and staking while businesses benefit from low interest rates.
Read more: BoE chief concerned over El Salvador use of Bitcoin as legal tender