Saying more than half of El Salvador’s businesses are funded by loan sharks, the government of El Salvador plans to offer $10 million in bitcoin-backed loans.
President Nayin Bukele’s strategy of making bitcoin a legal tender in the country and buying tens of millions of dollars’ worth of BTC has alarmed the International Monetary Fund (IMF), credit ratings firms like Moody’s, to say nothing of a fair chunk of the country’s population.
The loans will be made available to small businesses and microbusinesses, Paul Steiner, president of El Salvador’s National Commission for Micro and Small Enterprises, known as (Conamype), said on a Facebook Audio Room event Wednesday (Jan. 19).
About 86% of the country’s 1.2 million businesses are subsistence-level microbusinesses, 98% of which are funded by informal loans, mostly by loan sharks who charge outrageous interest rates as high as 2,300% annually, Steiner told CoinDesk.
Those 1 million entrepreneurs are dependent on “loan sharks charging between 20% and 25% per month,” Steiner told CoinDesk. “That is what we want to avoid.”
The bitcoin-backed microloans will be made via microfinance lender Acumen, a decentralized finance (DeFi) lending/borrowing platform built on the Solana blockchain. They will carry an annual interest rate of 6% to 10%, but generally no higher than 7%, according to Acumen Project Manager Andrea Gómez.
They will have an interest rate lower than what traditional banks offer, said Mónica Taher, El Salvador’s head of Technological and Economic International Affairs, and the Facebook session’s host.
See also: What is Solana?
The loans will be made and repaid in U.S. dollars.
“The bitcoin small loans will provide access to digital money for the unbanked while helping them create a credit history,” Taher told Cointelegraph. “El Salvador’s economy will strengthen by empowering its small businesses.”
Chivo Questions
Those loans will be run through El Salvador’s custom-built Chivo Wallet. Digital ID provider Netki said Tuesday (Jan. 18) that more than 4 million Salvadorans had downloaded Chivo. Overall, the platform said it had managed to onboard and provide anti-money laundering (AML) identity verification for 70% of the country’s unbanked citizens.
Along with a growing number of complaints of identity thieves hacking Chivo Wallets or opening unauthorized accounts — every citizen who created a Chivo Wallet is given $30 in bitcoin — there is a fair difference of opinion in how useful they are.
On the one hand, local news outlet El Mundo reported that a survey found 82% of Chivo Wallet holders have used them to buy food. On the other hand, El Salvador Gram, another local media outlet, said only 4.2% of Chivo holders use the digital wallet daily.
Then there’s a study by José Simeón Cañas Central American University (UCA) which last weekend announced that 87.5% of Salvadorans do not believe they have benefitted from the Bitcoin Law.
And last week, a group of Salvadoran immigrants in the U.S. announced a campaign to boycott the wallets, saying that as a means of sending remittances, they would be “an instrument of fraud,” reported El Salvador.com Jan. 14. “We ask all Salvadorans committed to financial transparency in our country to use all legal instruments available to send their remittances, except for the Chivo Wallet.”
Moody’s Investors Service doubled down on the ratings agency’s warnings about Bukele’s bitcoin buying spree.
Having already downgraded El Salvador’s bonds below junk, Moody’s analyst Jaime Reusche told Bloomberg last week that the national bitcoin investments “certainly add to the risk portfolio” of El Salvador, adding that trading bitcoin “is quite risky, particularly for a government that has been struggling with liquidity pressures in the past.”
This news is republished from another source. You can check the original article here
Be the first to comment