Crypto Lending Is Booming in Latin America Amid Bank Interest Rates and Inflation

It is not easy for Latin Americans to borrow money from traditional banks in an era of extremely high interest rates and relentless inflation. So, some in the region have turned to crypto to access needed credit.

In 2020, when coronavirus pandemic-induced inflation hit, Latin American central banks were among the first to raise interest rates, with further increases in 2021 and 2022.

As a result, lending rates from traditional banks have increased exponentially, acting as a trigger for the growth of crypto platforms, which offer up to 50% lower rates and zero maintenance fees.

Ledn, a Canada-based lending platform with more than 125,000 users, began operating in Latin America in 2019. The region now accounts for 50% of the company’s lending, the co-founder and chief strategy officer said. from Ledn, Mauricio Di Bartolomeo, to CoinDesk. .

“As the adoption of cryptocurrencies increased in Latin America, we noticed that people had to sell their bitcoins to spend them in their daily lives,” said Di Bartolomeo. “That’s when we saw that credit could help people grow their businesses or projects without selling their crypto.”

Ledn offers credit in US dollars and stablecoins in USD (USDC), with an annual interest rate of 7.9%. When receiving USD or USDC loans, the collateral in BTC must double the loan. The company has provided $500 million in loans in Latin America, with an average bitcoin-backed loan size of $9,206, Di Bartolomeo said.

In July, Buenbit, a Latin American crypto exchange, began offering crypto credits in Argentina via NuArs, an Argentine peso-pegged stablecoin (ARS) that runs on the Binance blockchain and must be collateralized in the pegged stablecoin. the US dollar DAI.

Since the launch of this lending feature, the amount borrowed from NuARS has increased by 70%, Buenbit CFO Manuel Calderon told CoinDesk. He said the borrowing limit was increased from ARS 1 million (equivalent to $3,703) to ARS 5 million ($18,518) in September, adjusting to user demand.

Depending on the amount borrowed, the collateral required can be up to 90%, Calderon said. The annual interest rate is around 69.5%, although it may change daily depending on market fluctuations, he added. With traditional Argentine banks, lending rates can exceed 200% per year, according to data from major institutions surveyed by CoinDesk.

“This feature is designed for those who don’t want to sell US dollars but need pesos for an expense, either short or long term,” Calderon said. “That way you can keep the dollars and use them as collateral to take out a loan.”

Calderon said around 30 loans are opened and 25 closed per day on Buenbit’s platform. “Users range from small and medium-sized businesses who want to get 5 million NuARS to buy machines, to people who only get 3,000 pesos ($11) to pay for a small expense like eating in a restaurant,” he said. -he declares.

In August, Num Finance, which developed a Peruvian-pegged stablecoin called NuPEN, began offering NuARS and NuPEN loans on its own platform in Argentina and Peru. According to Santiago Mignone, CEO of Num Finance, more than $250,000 has been loaned in the past month.

“Latin America is a region that has far fewer credit facilities than countries with similar incomes, such as Eastern Europe or South Africa,” Mignone said. “There is great incentive for crypto products that bring new modalities to help extend credit in multiple ways.”

Num Finance credits can be 100% collateralized with bitcoin, ether, or DAI, among other cryptos, while the interest varies according to each country’s benchmark rates. In Argentina, the rate of NuARS is 59%, while the rate of NuPEN goes up to 6%.

A troubled region

In August, Mexico’s central bank announced a monthly rate hike for the tenth consecutive month, adding 75 basis points and pushing interest rates to a record high of 8.5%.

Brazil, one of the first countries to tighten monetary policy in 2020, has the second highest interest rate in the world at 13.75%. But the first place, by far, goes to Argentina, whose central bank announced in September an increase of 550 basis points, reaching a benchmark interest rate of 75%.

Private banks are even more risk averse when granting a loan. In Brazil, the largest private bank, Itau, offers personal loans with an annual interest rate of up to 172.85%, according to its website. In Argentina, the annual interest rate offered by the largest private player, Banco Santander, can reach 230%.

“These rates are preventing citizens from repaying their loans as inflation continues to rise,” Darian Yane, an Argentinian crypto economist, told CoinDesk.

Latin America has one of the highest inflations in the world, averaging around 11% year-over-year. These figures have affected even the most stable countries, such as Chile and Peru, whose citizens have recently started to embrace crypto as a hedge against inflation.

Moreover, in Latin America, financial inclusion is still low. Up to 50% of its workforce works in informal conditions and therefore lacks the credit rating needed to apply for a loan.

“For someone living outside the banking system whose income is in local currency, who can’t access credit, can’t access a bank account, a credit card, whatever… that’s when crypto becomes a solution,” added Yane.