G7 says Libra should not launch until risks ‘adequately addressed’

Small toy figures are seen on representations of virtual currency in front of the Libra logo in this illustration picture. (REUTERS/Dado Ruvic/File Photo)
Updated 18 October 2019

G7 says Libra should not launch until risks ‘adequately addressed’

  • A currency like Libra could undermine sovereign nations’ control over their exchange rates, warns France’s economy minister
  • If it enters circulation, Libra would offer an alternative to traditional bank financial transfers

WASHINGTON: Facebook should not launch its global digital currency Libra until proper regulations are in place to handle the potential risks, the Group of Seven said Thursday.
And France’s Economy Minister Bruno Le Maire warned that a currency like Libra could undermine sovereign nations’ control over their exchange rates.
“It’s a matter of democracy, not just a simple economic question,” Le Maire told reporters, saying Facebook’s currency could have an “immediate global reach” through the social network’s huge membership.
Le Maire presented the Group of Seven nation’s statement on Libra, saying “no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed,” including the potential for money laundering and terror financing.
But, he told reporters, “The key question is the question of sovereignty.”
“Do we want a private company to have... the same power, and the same sovereignty, as democratic states” over currencies.
Libra, which would be backed by reserve assets unlike cryptocurrencies like Bitcoin, has faced a steady drumbeat of stern warnings from central bankers and financial regulators.
European Central Bank board member Benoit Coeure presented a report on digital currencies to the G7 finance ministers, who are gathering on the margins of the annual meetings of the International Monetary Fund and World Bank.
The report said a framework for oversight of Libra “is an absolute prerequisite,” and urged regulators to coordinate their work to prevent issuers from seeking out the most favorable country from which to operate.
If it enters circulation, Libra would offer an alternative to traditional bank financial transfers, a disruptive change that has aroused resistance and skepticism.
Facebook’s digital currency chief David Marcus told reporters in Washington that the issues raised by Le Maire are “legitimate concerns.”
“We’re determined to answer these concerns with real solutions that will meet or exceed the standards of the current system,” he told a small group of reporters at an event in Washington.
Mark Zuckerberg, Facebook’s co-founder and chief executive, was in Washington as well Thursday, and is due to testify before the US Congress next week on the social media network’s impact on financial services.
The Libra Association, which will oversee Facebook’s proposed currency and officially launched Monday in Geneva, also said in a statement that Libra “is being designed to respect national sovereignty over monetary policy in the digital space, not undermine it.”
But central bankers remain concerned about the prospects.
Lael Brainard, an influential member of the US Federal Reserve board, said Facebook’s proposed currency presented a host of risks and regulatory challenges for preventing money-laundering and assuring financial stability, and could be a challenge to the traditional role played by banks.
“There are likely to be financial stability risks for a stablecoin network with global reach,” she said in a speech Wednesday. “If not managed effectively, liquidity, credit, market, or operational risks — alone or in combination — could trigger a loss of confidence and a classic run.”
China, which is not a G7 member and decided two years ago to block cryptocurrency transactions, has recently sped up plans to introduce its own digital money.
Libra also has faced challenges from within after major financial and commercial players in recent weeks have backed out of the project, including Visa, Mastercard, eBay, Stripe, PayPal and the online travel firm Bookings Holdings.
The 21 founding members include the online payments company PayU, the telecoms firms Vodafone and Iliad, as well as tech outfits Uber, Spotify and Farfetch, blockchain operations such as Anchorage, Xapo and Coinbase and the venture capital firms Andreessen Horowitz, Ribbit Capital and non-profits Kiva and Mercy Corps.


A female entrepreneur brings crowdlending to Saudi Arabia

(Photo/Shutterstock)
Updated 25 January 2020

A female entrepreneur brings crowdlending to Saudi Arabia

  • Shariah-compliant peer-to-peer lending platform called Forus to be launched this year
  • Founder Nosaibah Alrajhi aims to help businesses and small investors in the Kingdom

RIYADH: It is no secret that small businesses struggle with obtaining funds to expand, with one avenue being particularly tricky in the region: Trying to rely on a national bank for help.
While things are improving, they are not doing so quickly enough. These longstanding problems have inspired Nosaibah Alrajhi, a former investment banker, to launch Forus, a Shariah-compliant peer-to-peer lending platform that she hopes can help bolster Saudi Arabia’s economic growth and enrich both business owners and small investors.
“It’s very straightforward: We bring together investors and SMEs (small and medium enterprises). Crowdlending will provide a steadier and safer return than say, investing in stocks or investment funds,” said Alrajhi, who serves as co-founder and chief executive.
“If you compare it to real estate, for example, you need a lot of cash upfront to invest in property, but with P2P (peer-to-peer) lending it provides almost everyone with the opportunity to invest and get a return.”
Having received a special license in July 2019, Forus will launch its platform in early 2020. For investors, it is quick and easy to register: You just need to complete a standard know-your-customer (KYC) process, and you will then be able to lend SR500 ($133) to SR10,000 to whichever companies you choose.
For would-be borrowers, Forus will undertake a credit and risk analysis that usually takes about 10 days.
“We do all the due diligence, and once companies meet our benchmarks, they’re listed on the platform, giving investors — individual and institutional — the opportunity to lend them money,” said Alrajhi. “We call it income investments — investors get their money back, plus fees.”
Companies listed on the online platform are rated according to risk — the bigger the risk, the larger the return for lenders. Companies can borrow up to a maximum of SR2 million.
“Investors can look at the companies’ financial reports, their strategy, their team, their products, as well as specific financial ratios that will help them make their decision,” said Alrajhi.
A company will request to borrow a certain amount, and once this is fully pledged by investors, it will receive the loan. Forus, in turn, earns a small commission. Loans are for six to 48 months.
“Our marketplace is providing investors with diversified alternative options (for) investing, while businesses are empowered with an opportunity to grow and scale,” said Alrajhi.
“We achieve this by minimizing friction, streamlining the customer experience and providing a seamless, secure and transparent platform.”
Alrajhi holds an MBA from Madrid’s IE Business School, where her research led her to spot a gap in the market for a fintech-based, P2P lender in Saudi Arabia.
“If you look at the market today, there’s only a few banks who are willing to lend to SMEs, which banks see as quite high risk,” said Alrajhi. “In Saudi, there are roughly 16,000 SMEs looking for loans.”
Forus uses a murabaha — cost plus financing — structure for its loans, which are not interest-bearing and so are Shariah-compliant.
In English, Shariah-compliant lending will refer to a profit rate rather than an interest rate, although in Arabic there is no such linguistic distinction.
Nevertheless, Forus’s loans are Islamic. “In Saudi, the biggest market is for Shariah-compliant financial services,” said Alrajhi.
She hopes her platform will provide a win-win for investors and SMEs — investors can earn a bigger return on their money, while SMEs can obtain the funds needed to expand their operations and increase profits.
In the longer term, Forus plans to expand to Egypt and Pakistan, but for now Alrajhi’s focus is firmly on her native Saudi Arabia.
“One of the main impacts we aim to have is transparency, which will then enable financial inclusion and help increase GDP (gross domestic product),” she said.
“We’ve talked to so many SMEs, and we found that almost all are facing challenges when it comes to borrowing.”
She leads a team of 10 staff at Forus, and is a female trailblazer in the Kingdom’s male-dominated financial services sector and more broadly in Saudi Arabia, where women constitute less than 25 percent of the workforce.
“Within the next five years, Saudi’s financial sector will look completely different,” said Alrajhi.


This report is being published by Arab News as a partner of the Middle East Exchange, which was launched by the Mohammed bin Rashid Al Maktoum Global Initiatives and the Bill and Melinda Gates Foundation to reflect the vision of the UAE prime minister and ruler of Dubai to explore the possibility of changing the status of the Arab region.