The Power of Diaspora Bonds

Mobilizing Development Finance in Africa

We can infer from these staggering statistics that Diaspora is pivotal to the development of its home country, and another testament of the significant economic impact of diaspora funding on Africa, is the emergence of some countries issuing diaspora bonds.

Diaspora bonds, a sovereign debt instrument sold by governments to their diaspora populations offer a particularly large untapped opportunity for African countries to attract additional development finance (World Bank 2015), providing an alternative source of borrowing to international capital markets, bilateral intergovernmental lending groups, the international monetary fund, World Bank and other multilateral lending organizations. Several countries, including India, Israel, Bangladesh, Philippines, and others have used these bonds, tapping close diaspora affinity, loyalty and interest to raise substantial additional means of external financing for development.

In Africa, long term diaspora investment potential remains untapped with only Ethiopia, Ghana, Kenya, Nigeria and Rwanda issuing diaspora bonds, representing a total population of four million individuals, or 12 percent of total African Migrants (Centre for International Governance Innovation 2018).

In saying this, tapping into diaspora finance definitely has multiple constraints, starting with the fact that the instruments such as Diaspora bonds are complex in nature, possess multiple characteristics, and has to be tailored carefully to country specific circumstances. It is a long-term investment process with success depending on several factors such as having a vivid understanding of the size, locations, economic and demographic characteristics of the Diasporas, their skill level, income, information from official institutions in host countries, not to mention regulatory compliance across multiple jurisdictions.

For most African countries, access to the full range data both in home and host countries is limited, and they lack the institutional capacity to actualise the processes involved in harnessing these financial instruments. Notwithstanding, India, Israel and less developed countries have issued these bonds, so can African countries. The AfDB can provide a framework, identify institutions like the World Bank, who can develop risk mitigating instruments to support the bond issuance.