Kotecha: Libra requires greater infrastructure to help unbanked

There is “no way in hell” that Libra will solve the problem of banking the unbanked, says Nish Kotecha, co-founder of Finboot.

Kotecha, who was previously the CEO of Geosansar, a financial services enterprise aimed at helping India’s 600 million unbanked population, believes Libra is a “nice presentation, but completely impractical, especially backed by Facebook.”

Facebook is one of 23 partners that make up the Libra Association. Partner companies such as Mercy Corps and Kiva are non-profits with histories of working toward financial inclusion.

According to a Mercy Corps spokesperson, Libra can help create a wider network for the unbanked.

“There is no one silver bullet that will solve financial inclusion, but we expect Libra to be a useful tool in combating financial exclusion. The fast-changing nature of money could bring risks for the world’s most vulnerable people if their needs are not taken into consideration as new digital currencies are designed.”

“Converting from a digital currency to a local currency does not require a bank account; it only requires finding a merchant, or an individual, who is willing to exchange the digital coin for something of value, be that goods or cash. Moreover, if the digital currency is widely accepted, it is possible that people will use the currency for transactions, without the necessity of converting to the local coin first — as is done widely in China with AliPay.”

For Kotecha, infrastructural problems exist for Libra.

“The challenges that exist in many emerging countries is one of cash to digitisation … because many of these slum areas and rural areas where the poor live, particularly in rural parts of the country, they lack a bank branch,” he says. “They lack a place they can go from digital money to physical money, because their economy is still physical.”

“I’m hoping we’ll see a full digitisation of those local economies. That’s a challenge, that’s where there’s a gap. Libra doesn’t solve that problem. It requires that problem to be solved before it can be effective.”

According to the World Bank nearly 1.7 million adults in the world did not have a bank account in 2017.

Financial inclusion is at the core of the Libra Association’s cause. In its whitepaper from June, founders wrote that their mission was “to enable a simple global currency and financial infrastructure that empowers billions of people.”

According to Kotecha, financial infrastructure must be in place for a cryptocurrency like Libra to function in the first place. Regulation also remains a concern.

“If something goes wrong and Libra causes [users] to lose their money – then going back to the most vulnerable people in our society – they will turn to the governments, and they will expect the government to bail them out,” says Kotecha.

“They will expect the government to make good any of the losses they’ve incurred by using the Libra platform.”

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