El Salvador Studies Bitcoin-Backed Low Interest Loans
Bitcoin continues to grow in popularity in El Salvador. The nation is actively investigating the prospect of offering low-interest Bitcoin (BTC)-backed loans. This is stated to be largely focused at the country’s small and micro-enterprises (SMEs).
While no specifics have been revealed, an advisor to El Salvador’s administration was open in an online conversation. The topic of debate was “Bitcoin loans with reduced interest rates.”
Among the first aspects that has become evident was that the financing would be fully reliant on the El Chivo wallet created by El Salvador’s administration. The majority of businesses in El Salvador are classified as small and micro firms.
While the nation is reported to have over 1.2 million businesses, 66% of them are tiny or micro-enterprises. Around 90% of such micro-enterprises in the nation are thought to be self-financed via unofficial loans or money lenders.
Nevertheless, these kind of loans are detrimental to businesses. They often end paying up to $15 per day as interest on such kinds of loans that are usually returned in a span of 20 business days. According to reports, this form of loan might have a yearly interest rate of up to 10,000%.
By securing loans using Bitcoin as collateral, a reduced interest rate may be demanded. This benefits individuals who borrow funds. As per Andrea Martia Gomez, a venture manager for Acumen, a DeFi lending covenant, “certain crypto advocates in El Salvador are already utilizing cryptocurrency services such as Defi since they provide more simplicity of use and better interest rates than banks.”
In Canada, a comparable effort was just debuted: mortgages guaranteed by the leading cryptocurrency. A question was raised in the online conversation about whether this may also be a solution for El Salvador. The argument was that small and micro-business loans should come initially, and mortgages may be handled later.
Bitcoin is proven to be a significant prospect for a number of El Salvadorian firms. It serves as a gateway to funding. It is unknown at the moment if the loans would be made accessible in the nation; the matter is still under review.