El Salvador President Nayib Bukele is pushing the boundaries by implementing Bitcoin as a legal currency in the real world. The Salvadoran government is trying to develop a Bitcoin-backed loan product for micro and small companies across the country.
Small and micro businesses will be able to ditch low-interest loans secured by Bitcoin (BTC) in the near future.
El Salvador considering providing Bitcoin-backed loans
During a recent Facebook Live Audio discussion titled “Bitcoin loans at lower interest rates,” El Salvador government advisor Monica Taher stated that the next step in El Salvador’s Bitcoin agenda is to use cryptocurrency to provide low-interest loans to businesses.
Government adviser Monica Taher said:
“Bitcoin-backed loans will help those without a bank account build a credit history while providing access to digital money. El Salvador’s economy will strengthen by empowering its small businesses.”
According to Paul Steiner, president of CONAMYPE (the national institute for small and micro businesses), the execution of the loans will work with the government-created El Chivo wallet. There is a rapid increase in the use of El Chivo, the official Bitcoin and USD wallet of the Government of El Salvador.
In less than four months since its founding, it has amassed more than 60 percent of the country’s total population. Of the 6.5 million population (including those under the age of 18 who cannot use the wallet), 4 million use the wallet.
Small and micro businesses dominate El Salvador’s business landscape, and Bitcoin-backed loans offer a chance to change that. Steiner said:
“In El Salvador, there are about 1.2 million businesses in the country. Roughly 66% are micro businesses or “subsistence” businesses. More than 90% of micro-businesses are self-financed through informal loans or moneylenders.”
As an example, Steiner says it’s common for usurers and informal lenders to charge interest of up to $15 per day on a $100 loan that will be repaid in 20 days. The lives of these entrepreneurs will improve significantly with Bitcoin-backed low-interest loans that will serve as an “entry point for financing.”
Are Bitcoin Backed Loans a successful solution?
“Some crypto enthusiasts in El Salvador are already using crypto solutions like DeFi because they offer ease of use and higher interest rates than banks,” said Andrea Mara Gómez, project manager at Acumen, a decentralized finance (DeFi) credit system.
Alessandro Cecere, one of Ledn’s Community Managers, also commented on BTC loans. Ledn pioneers BTC guaranteed mortgages. His question, however, is whether El Salvador will follow their model and use Bitcoin as future mortgage collateral.