El Salvador’s growing Fintech ecosystem
Located in Central America, El Salvador is the smallest country in the region along with a population of 6.4 million. In recent years, El Salvador has shown significant progress in the economy and equality, becoming the second most equitable country in Latin America and the Caribbean, after Uruguay. In addition, the poverty rate decreased from 39 percent in 2007 to 29 percent in 2017. Even though the COVID pandemic negatively affected its economy, causing a contraction of almost 8 percent in 2020, El Salvador’s economy is expected to recover and a growth of 4.9 percent is expected in 2021(World Bank, 2021).
El Salvador’s financial system is characterized by seeking within its regulatory environment the creation of financial alternatives and solutions for its clients. This in order to reduce the mortality of SMEs and on the contrary to boost the activities of entrepreneurs and SMEs .
Fintech in El Salvador
Fintech companies have emerged in Central America out of necessity, mainly to make payments, execute transactions, manage finances and consult online in a simpler way. It is estimated that there are around 13 Fintech currently in El Salvador, a low number in the Latin American region but in Central America specifically it is an optimistic number that indicates that little by little the sector is developing in the region.
Fintech companies in El Salvador focus on the categories of financial advice (personal finance), electronic money, payments, loans and market provisioning. It also highlights the fact that 7% of Fintech companies are in the development stage (Diario El Salvador, 2021). Within the Lending Fintech sector we can find the Fintech FIADO, which makes loans quickly from a smartphone to both companies and individuals.
The country is favorable to the expansion of the sector. In fact, even the country’s central reserve bank is working on a regulatory framework that allows creating an orderly Fintech ecosystem. A fact that marked a present recently was the legalization of bitcoin as an official currency of El Salvador. This means that the cryptocurrency will be legal tender in the country as an option. The project has caused diverse opinions both in favor and against; however, the current government has decided to continue with it and continue it´s vision of openness towards new technologies.
The outlook in El Salvador looks promising, but it will be necessary to adjust the proposals so that they can be carried out correctly. With the strong support for bitcoin, it is a matter of time before other Fintech sectors can take off, one of them being lending, which would help the currently underserved business sector.
