Question

Diaspora Bonds:

A) Name 2 advantages diaspora bonds have over a traditional local currency bond a

country might issue.

      B) How might diaspora bonds benefit a country more than remittances?

C) Name 2 reasons why a diaspora bond might fail to attract sufficient interest from the

diaspora.

Answer 1

ANSWER -

Bonds issued by a country to its own Diaspora to tap in their wealth in the adopted developed countries  Examples: State of Israel bonds, RIBs and IMDs from India, also bonds issued by Lebanon and Sri Lanka.

ADVANTAGES OF DIASPORA BOND -

1. Credit enhancements via donor guarantees or securitization and investor protections via outside professional fund management would facilitate the issuance of diaspora bonds.

2. It is non-negotiable and non-volatile.

BENEFITS OF DIASPORA BOND TO A COUNTRY THAN REMITTANCES -

• Capacitates and equips migrants to invest their savings in the well-being of their community of origin.
• Diaspora investments are less prone to capital flight in times of political/economic crisis; more generally the diaspora is ready to accept a higher risk premium than the market.
• Countries may be able to price financial products geared to the diaspora at a discount, as diaspora investors are willing to accept lower returns; Israel, India, and Lebanon were able to price bonds for their diasporas at discount rates.
• Promote public-private partnerships and the relationship between migrants and their home countries.

FAILURE OF DIASPORA BOND TO ATTRACT SUFFICIENT INTEREST-

• High transaction costs associated with the transfer of money reduce the financial resources available to families in the home country.
• An insufficient political will to promote accessibility, competition, and transparency in the money transfer market, including by reviewing legal and policy frameworks to eliminate barriers, especially for international transfers of small amounts.
• Government involvement in setting up the investment vehicles generates opportunities/risks for corruption; those vehicles should be shielded from government interference;
• Currency exchange risks.