Pilot Launch | The Case of Country A: Cash to Civil Society in Crisis
Mercy Corps Ventures has partnered with country office teams, a locally-founded startup, and four local organizations to pilot stablecoin transfers to better deliver humanitarian aid during an ongoing conflict. For security reasons, the name of the country, region, partners, and service providers in this pilot have been anonymized.
This year, nearly 300 million people worldwide will require humanitarian assistance, while a record number of people are forcibly displaced by conflict and climate disaster. The communities and the civil society groups that represent them are fighting to maintain resilience and cohesion as conflict rises, climate change intensifies, and inequality grows. At the same time, the humanitarian space — defined as the mandate to provide impartial, rapid, and unimpeded access to people in need — is more constrained than ever. The explosion of digital connectivity and social media is now revealing, in real time, how humanitarian access in conflict zones is increasingly limited due to the physical threats of insecurity. In some contexts, humanitarian access is deliberately and actively obstructed by hostile parties. At Davos 2024, leaders convened to discuss the implications of a “humanitarian system under pressure.”
The result: International humanitarian aid funds slow to a trickle, and even less reaches the local communities and local organizations on the ground responsible for implementing the majority of aid programs. Already, only 1.2% of global aid funds actually reach local actors.
We’re currently providing support in a humanitarian context that’s experiencing all of the above challenges at once (we’ll refer to it as “Country A”).
In this particular context in Country A, hostile parties, unrecognized as a government by the international community, have blocked UN agencies and local and international NGOs from delivering lifesaving assistance in disaster-affected areas. Civil society is shrinking as authorities surveil financial transactions and detain or “disappear” staff accessing grant funds via regulated financial institutions. As a result, many financial service providers are withdrawing their services from the country. Countless international NGOs and businesses have been barred completely from accessing local bank accounts. Even organizations operating from neighboring countries have fewer and fewer ways to move funds into the country to help the communities they support. And yet, in the face of these challenges and restrictions, local entrepreneurs, innovators, and organizations have managed to develop informal digital channels to move money and information — a lifeline for the millions now living in conflict-affected areas.
Our stablecoin-enabled solution
To ensure unimpeded humanitarian access and allow program implementation to continue, Mercy Corps teams in Country A have partnered with a locally-founded tech startup to pilot the delivery of stablecoin-enabled grant payments to civil society groups and local NGO partners. The following hypotheses are underpinning this pilot:
Stablecoin-based grant disbursements to decentralized wallets ensures that local partners can access funds safely and anonymously by:
- Leveraging informal networks of local businesses and money agents, providing an agile, mobile cash-out network that is well adapted to the movement of funds in a conflict zone
- KPI 1: % increase in partner ease and flexibility of receiving, accessing, and cashing out grant funds
- Accessing program grant funds digitally and anonymously reduces risks for partners (i.e. minimizing harassment and seizure) by allowing smaller and more frequent withdrawals in safe locations
- KPI 2: % improvement in sense of safety and security when receiving, accessing, and cashing out grant funds
- Reducing the third-party risks, costs, and long transfer times incurred by using a combination of CeFi (centralized finance) methods, such as bank swaps.
- KPI 3: % reduction in total transfer time from headquarters to local partners
- KPI 4: % reduction in total cost of transferring grants from headquarters to local partners
Although not a specific metric for this pilot, we prioritized partnership with a local service provider to make sure that the application used was adapted to culture and context and available in local language, with a safe and trusted network of off-ramps. We engaged all stakeholders in a human-centered pilot design process to enrich and inform product development, testing, and user adoption.
How it works
The pressures inherent to the operating environment in Country A are significant, as they are in many conflict areas. In Country A specifically, hostility against humanitarian actors requires organizations to maintain a very low profile. A checkpoint on the road could arrest an entire humanitarian operation and jeopardize aid for thousands of conflict-affected households. However, Country A also has relatively high rates of smartphone adoption, and digital communications via messaging apps and social media are a critical communication channel for many.
The Money
Mercy Corps’ operating model in Country A, as in many countries, is to disburse sub-grants from international donors to local partners, with local partners leading program implementation on the ground. To avoid the risks associated with using financial services in Country A, Mercy Corps’ Global Treasury teams used a self-custody wallet to purchase crypto (USDC) and to connect to the service provider’s bulk disbursement platform. The disbursement platform is subsequently used by the country office to initiate transactions, with funds drawn directly to headquarters and deposited into a designated partner’s wallet.
The Wallet
Partners are registered on the platform by the country office, which then triggers a notification to each partner to create their digital wallet. The digital wallet developed by the local service provider uses Web3Auth technology to effectively automate the generation of a self-custodied wallet on Polygon for each user. In this case, local partners received an anonymous message to their emails or messenger accounts with a link to generate and access their wallets using their social media login or email. With the wallet only accessible via browser, it is not device-specific and there is no app visible to authorities in case of seizure. Once the partner wallet is set up, the wallet address auto-populates to the platform for the country office to see and use for deposits.
The Cash Out
After receiving grant funds in their wallet, partners use a feature in the wallet to select and contact a local cash-out merchant to make an anonymous cash request and agree on a pick-up location.
The pilot
In order to repeatedly test the full flow of funds in a way that could validate our hypotheses, we organized grant disbursements into four transfer rounds, increasing the amount of funds, cash-out locations, and frequency of cash-outs during each round. Transaction timings and amounts were designed to mimic the agility required by partners who are constantly moving operations between locations for operational and security reasons.
A consultation and monitoring session will be held after each round to reflect on and adjust approaches based on challenges and successes. The same process will be used to collect qualitative data for evaluation, such as tracking improvements in partners’ ease of use and sense of safety in receiving transfers. Local partners and Mercy Corps’ country teams have received training on understanding blockchain and crypto and how to use the digital wallet and disbursement tools. Mercy Corps’ Global Treasury has conducted repeated test transactions to test the flow of funds.
These approaches — deliberative pilot design and data collection for measurable results — are also a core part of the broader technical support our Humanitarian Venture Lab offers to country teams. An evaluation of the pilot will provide recommendations on scalability and product development to support stakeholders going forward.
What we expect
This pilot is unique, and this use case has been poorly documented in the humanitarian sector. However, in Country A’s operating context, it addresses a pain point that is core to maintaining a humanitarian lifeline to help communities as a growing conflict unfolds. The flow of funds in this pilot is also very simple, with the potential total number of users limited to the number of local partners running programs on the ground.
But in the bigger scheme of things, the success of this pilot could open doors for all of the other humanitarian organizations in Country A that are currently struggling to get money to civil society counterparts, at a very critical time. And the worse the situation gets, the more likely it is that this type of alternative solution will be needed. The transaction flows associated with aid grants from international donors to multiple organizations operating in a given country is orders of magnitude larger than funds flow in a single program. In other words, this could be a game changer in shifting the way assistance is delivered to Country A, on a national scale.
We’ll keep you posted.
Mercy Corps Ventures is launching its Humanitarian Venture Lab to pilot test innovative solutions in partnership with aid organizations and technology partners.
