El Salvador plans to provide Crypto-based loans to SME’s

Paigambar Mohan Raj
El Salvador
Source: news.bitcoin.com

El Salvador plans to provide cryptocurrency-based loans to small and medium-sized businesses (SMEs). In the first quarter of 2022, the government will launch a $10 million line of credit granted by the Solana-based lending platform Acumen.

Acumen’s loans will have an annual interest rate of 6% to 7%, with the possibility of going up to 10%, according to Andrea Gómez, project manager at Acumen. 

Why is El Salvador planing Crypto-based loans?

Paul Steiner, Conamype’s (SME’s) president, says 86% of El Salvador’s businesses are in the informal sector, with no access to financial services. He noted that 98% of them rely on unlicensed lenders who charge yearly interest rates of 2,300 percent on average.

Steiner told CoinDesk that the government has been in negotiations with Acumen since October 2021, following the Central American country’s acceptance of bitcoin as legal cash. Simultaneously, it is in talks with other crypto lending platforms to give loans to Salvadoran SMEs, according to Steiner, who said that the deals, if inked, might reach $200 million. Steiner also said that they want the people to avoid borrowing from loan sharks who charge between 20%-25% per month. 

How will Acumen carry out this task?

Acumen will convert cryptocurrency to stablecoins — USDC or tether — and transmit US dollars to Conamype, which will distribute US dollars to Salvadoran SMEs and entrepreneurs via the state-owned bank Banco Hipotecario. Salvadorans will pay capital and interest in US dollars, and the government will repay Acumen with US dollars as well. 

The agreement’s details are still being worked out between El Salvador’s government and Acumen, but the product should be available in the first quarter of 2022. Acumen has 15,000 subscribers and was approved as a lender by El Salvador’s Central Bank in November 2021. 

This also comes at a time when El Salvador’s President, Nayid Bukele, is on a state visit to Turkey. Both the state leaders will hold talks to improve Turkey’s faltering economy. The two might just add crypto to the discussion. Guess we have to wait and find out.