Facebook's digital currency Libra: Why nonprofits are joining

Small toy figures are seen on representations of virtual currency in front of the Libra logo. Photo by: REUTERS / Dado Ruvic / Illustration

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SAN FRANCISCO — Facebook, together with 27 partners ranging from Visa to Mercy Corps, has unveiled a new global currency built on blockchain.

The company has been working on Libra for more than a year, but it is distancing itself from directly managing the cryptocurrency. Facebook created Calibra, the digital wallet that will store the currency, as a subsidiary that company representatives said will not be allowed to share financial customer data with other divisions of the company.

Facebook also established the Libra Association, an independent nonprofit entity based in Geneva, Switzerland, that will handle the design and release of Libra network, oversee the blockchain, and manage the digital token.

“If the Libra ecosystem does not have the mindsets of the poor at the center of its token design and governance structures, it is not a social impact tool but an expansion of the reach for private entities like Facebook and Visa.”

— Michael Cooper, expert, Emergence

But none of this has spared the effort — which is still in its formative stages and expected to launch next year — from scrutiny. Facebook has become a lightning rod for criticism after a series of privacy breaches exposed the personal data of hundreds of millions of users. Many skeptics doubt whether its latest venture can protect the private information it collects, especially considering that Libra is being seen as a tool to potentially serve vulnerable populations.

Expanding financial inclusion

Founding partners Mercy Corps, Women’s World Banking, and Kiva had to weigh the pros and cons of joining the Libra Association, which aims to grow to 100 members with equal voting rights.

Ultimately, they decided their participation is critical for this new digital currency to realize its potential to promote financial inclusion.

“All of our work is about how we can serve low-income women with the financial products and services they need,” said Karen Miller, vice president of knowledge and communications at Women’s World Banking. “This seemed like an opportunity not only to expand financial access to the unbanked and underserved women, but also to ensure that as this was getting developed, there is a voice at the table representing the majority of the unbanked and underserved people around the world — which are women.”

While many of the companies involved in the effort are investing $10 million, social impact partners do not pay for a seat at the table. Some see their involvement as an effort by Facebook, which has come under fire for its mishandling of user data, to bring in more trustworthy partners. But the nonprofits Devex spoke with say their input will be necessary for this effort to succeed.

“We feel very confident — and I’m sure Mercy Corps and Kiva would say the same thing —  that we are the ones closest to the segment this is designed to serve,” Miller said.

With 2.4 billion users, Facebook has a reach that can help organizations working on financial inclusion to achieve impact at scale, particularly given its massive user base in lower-income countries.

But the company’s business model, which has historically depended on utilizing sensitive data like personally identifiable information for profit, poses major risk, said Michael Cooper, an expert at Emergence, who advises groups including donor agencies on blockchain applications.

“Right now, there is massive potential in the Libra ecosystem but this potential will require the development of new thinking and tools,” he said.

Nonprofits must have new thinking and tools in hand, or have an action plan for developing this mindset and skill set, otherwise they must be “willing to accept that whatever social impact does materialize out of the Libra ecosystem will be minimal and come at an incredibly high opportunity cost,” he wrote in an email to Devex.

Ultimately, Mercy Corps made a decision based not only on the potential of the technology, but also the risk to the people they serve if it is not built in an inclusive way.

“A global, stable, and secure currency powered by blockchain offers the potential to transform how aid is operated and delivered around the world — significantly increasing efficiency, transparency and accountability.”

— Neal Keny-Guyer, CEO, Mercy Corps

Neal Keny-Guyer, CEO at Mercy Corps, thinks Libra “could spark a revolution in financial inclusion,” he wrote in a blog post about the launch. He outlined five ways this new global currency might benefit the people Mercy Corps serves, for example by providing a low volatility currency to people living in countries struggling with conflict, natural disasters, or other forms of instability.

“A global, stable, and secure currency powered by blockchain offers the potential to transform how aid is operated and delivered around the world — significantly increasing efficiency, transparency and accountability,” he wrote.

The blockchain on which Libra will be built could allow for innovation in user identification, a huge challenge for financial inclusion in low- and middle-income countries. And as an open platform, Libra will offer the potential for new players to create financial services for people living in poverty, Keny-Guyer noted.

Shivani Siroya, CEO at Tala, which offers loans to unbanked and underbanked populations in Kenya, Tanzania, Mexico, India, and the Philippines, said the promise is exciting.

“What it could do for a company like ours is it could accelerate our ability to go horizontally very quickly,” she said at Fortune’s Brainstorm Finance conference this week.

Currently, Tala has to build all of its own connections when it enters a new country, but a borderless virtual currency could change that.

What about Facebook?

The nonprofits who joined the Libra Association, and those who may join in the future, are likely to have ongoing debates on the usefulness of cryptocurrency and the trustworthiness of Facebook.

One appeal of cryptocurrency is that it could allow actors to bypass the international correspondent banking system, which generates a lot of the costs and delays associated with cross border transactions, said Michael Pisa, a policy fellow at the Center for Global Development, in an email to Devex.

Regulators may refuse to allow the currency to be used, but since the founding partners in the Libra network are not obliged to actually use the cryptocurrency, the only real risk they face is reputational, he said.

At this early stage, there are more questions than answers about the Libra effort, and one question is whether this service will take off among its target user base.

Calibra will be available as a standalone app, and it will also integrate directly into Messenger and WhatsApp, both products by Facebook.

“There are more people with phones than bank accounts,” said Jojo Malolos, CEO at Wing, a mobile banking services provider in Cambodia, and senior adviser to Women’s World Banking, a nonprofit founding partner.

What remains to be seen is whether the 1.7 billion people without bank accounts will use social media as a platform to send and receive money, he said. Most of these users will not be focused on some of the questions around data sharing that are dominating the media narrative, but rather questions like: “Why would I change from Western Union to this?” Malolos said.

Cooper of Emergence noted how critical it is to have the needs of the poor at the center of the initiative.

“Blockchains are driven by tokens, tokens are driven by business models, and business models are, in part, driven by value propositions,” he said.

The question is whose value propositions drive the Libra blockchain governance and token design, as well as what their value proposition is.

“If the Libra ecosystem does not have the mindsets of the poor at the center of its token design and governance structures, it is not a social impact tool but an expansion of the reach for private entities like Facebook and Visa,” Cooper said.

An ‘encouraging signal’

The nonprofits Devex spoke with said their involvement in the Libra Association is just one example of their efforts to explore emerging technology for financial inclusion.

For example, Kiva’s participation in the Libra Association builds on its work on Kiva Protocol, which uses blockchain technology to create a verifiable identity and offer credit history for unbanked customers.

Neville Crawley, CEO at Kiva, said in a blog post that Libra could help to improve the delivery and source of funds for financial inclusion.

Nonprofits are downplaying the involvement of Facebook. For example, neither Keny-Guyer’s nor Crawley’s blog posts mention the company. Rather, they stress the multistakeholder nature of the Libra Association and the importance of nonprofit involvement.

“I would say this is a really encouraging signal of the recognition of the importance of expertise in reaching and serving those who have been financially excluded to date,” Pete Lewis, vice president of marketing and communications at Mercy Corps, told Devex

He added that whether or not Libra delivers on its promise, nonprofits must continue to address other barriers to financial inclusion, from access to technology to financial and technological literacy.

“We feel that we and other social impact partners need to engage in changes of this scale to make sure they do live up to their promise of being truly inclusive,” Lewis said.

About the author

  • Catherine Cheney

    Catherine Cheney is a Senior Reporter for Devex. She covers the West Coast of the U.S., focusing on the role of technology, innovation, and philanthropy in achieving the Sustainable Development Goals. And she frequently represents Devex as a speaker and moderator. Prior to joining Devex, Catherine earned her bachelor’s and master’s degrees from Yale University, worked as a web producer for POLITICO and reporter for World Politics Review, and helped to launch NationSwell. Catherine has reported domestically and internationally for outlets including The Atlantic and the Washington Post. Catherine also works for the Solutions Journalism Network, a non profit that trains and connects reporters to cover responses to problems.

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