Crypto-Based Loans For SMEs – The government will issue a $10 million line of credit through the Solana-based lending platform Acumen in the first quarter of 2022.
As of the first quarter of 2022, the government of El Salvador wants to give $10 million in crypto-based loans to small and medium-sized businesses (SMEs).
Conamype’s president, Paul Steiner, told CoinDesk that Acumen, a Solana-based lending and borrowing platform, will provide US dollar funding to El Salvador’s National Commission for Micro and Small Enterprises (Conamype), a government entity that plans to allocate financing to local informal entrepreneurs and self-employed workers.
Acumen’s loans would 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.
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According to Steiner, 86 percent of El Salvador’s businesses are in the informal sector, with no access to banking services. He noted that 98 percent of those rely on unlicensed lenders who charge yearly interest rates of 2,300 percent on average.
“They are loan sharks who charge between 20% and 25% each month in interest. That’s what we’re trying to avoid ” Steiner said.
According to Steiner, the government has been in talks 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 provide loans to Salvadoran SMEs, according to Steiner, who added that the deals, if inked, might total $200 million.
Acumen will convert cryptocurrency to stablecoins – USDC or tether – and send US dollars to Conamype, which will distribute US dollars to Salvadoran SMEs and entrepreneurs via the state-owned bank Banco Hipotecario – According to Steiner.
Salvadorans, on the other hand, will pay capital and interest in US dollars, with the government returning US dollars to Acumen, according to Steiner.
According to Gomez, the El Salvadorian government and Acumen are still working out the terms of the deal, but the product will be ready in the first quarter of this year.
Acumen has 15,000 subscribers, according to Gomez, and was approved as a lender by the Central Bank of El Salvador in November 2021.
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Current State Of The Lending Market – Crypto-Based Loans For SMEs
To stress the relevance of these loans in light of the challenges small and medium businesses have in obtaining funding in the country, most small firms, according to Steiner, are still outside of the country’s traditional financial system.
He explained:
“Loan sharks charge between 20% and 25% every month for their services. That is precisely what we do not want to occur.”
This is due to the fact that more than 80% of small businesses in El Salvador do not have a bank account, according to Steiner. Companies, on the other hand, would not have to meet the same conditions as banks in order to acquire these loans, according to the country’s adoption of the bitcoin law.
Steiner also discussed the annual interest rates for the loans, claiming that depending on the risk of each studied project, they would be the lowest in the market — especially if borrowing money from loan sharks is the only alternative.