Economic instability and the traditional banking system make it hard for people in Latin America to get credit. However, cryptocurrency lending is flourishing across the region.
In an era of highly high-interest rates and constant inflation, it is not easy for Latin Americans to borrow money from traditional banks. Some people are now considering cryptocurrencies for credit.
The 2020 pandemic triggered various forms of inflation. Central banks in Latin America prominent were the first to raise interest rates. This is increasing in 2021 and 2022. Traditional bank lending rates rose exponentially. This is a catalyst for the growth of crypto platforms offering up to 50% lower interest rates and maintenance costs.
Crypto Lending Platforms
Ledn is a Canada-based lending platform with over 125,000 users. It launched operations in Latin America in 2019. The region now accounts for 50% of the company’s lending.
Mauricio Di Bartolomeo, Ledn’s co-founder and chief strategy officer, told CoinDesk.
“As the adoption of cryptocurrencies grew in Latin America, we noticed that people had to sell their bitcoins to spend on their daily lives…That was when we saw credit could help people grow their businesses or projects without selling their crypto.”
Ledn offers loans in USD and the USD Coin (USDC) with an annual interest rate of 7.9%. If you receive a USD or USDC loan, your BTC collateral must match the loan. According to Di Bartolomeo, the company has provided $500 million in loans in Latin America. The average Bitcoin-backed loan amount is $9,206.
In July, Latin American cryptocurrency exchange Buenbit launched a crypto exchange pegged to the Argentine Peso (ARS). Crypto operates on the Binance blockchain. It requires collateral in the USD-pegged stablecoin DAI. I started offering cryptocurrency lending in Argentina via stablecoin Nuars.
The amount borrowed from Nuars has increased by 70%. Buenbit financial manager Manuel Calderon said the credit limit was increased from ARS 1 million (equivalent to $3,703) to ARS 5 million ($18,518) in September in line with user demand.
Collateral on the Amount of Crypto Loans Borrowed
The required collateral depends on the amount borrowed. The collateral can be as high as 90%. The annual interest rate is around 69.5%. It can change depending on market fluctuations. According to data from leading institutions surveyed by CoinDesk, traditional banks in Argentina can have lending rates of over 200% per year.
About 30 loans are opened daily. Twenty-five is closed on Buenbit’s platform every day. According to Calderon,
“Users range from small businesses who want to get NuAR for 5 million to buy a machine to people who can only get 3,000 pesos (US$11) for a small expense like a meal at a restaurant. It varies.”
In August, Num Finance (NuPEN) started offering loans in NuARS and NuPEN. This was on its platform in Argentina and Perú. According to Num Finance’s CEO, more than $250,000 were lent over the last month.
Num Finance loans can be 100% collateralized in Bitcoin, Ether, or DAI. The interest rate varies depending on the base interest rate of each country. In Argentina, the NuARS rate is 59%, while the NuPEN rate has risen to 6%.