Development Finance via Diaspora Bonds: Track Record and Potential
A diaspora bond is a debt instrument issued by a country - or potentially, a sub-sovereign entity or a private corporation - to raise financing from its overseas diaspora. Israel and India have raised $35-40 billion using these bonds. Drawing on th...
| Main Authors: | , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/08/8066254/development-finance-diaspora-bonds-track-record-potential http://hdl.handle.net/10986/14311 |
| Summary: | A diaspora bond is a debt instrument
issued by a country - or potentially, a sub-sovereign entity
or a private corporation - to raise financing from its
overseas diaspora. Israel and India have raised $35-40
billion using these bonds. Drawing on their experiences,
this paper discusses the rationale, methodology, and factors
affecting the issuance of diaspora bonds for raising
external development finance. The Government of Israel has
offered a flexible menu of diaspora bonds since 1951 to keep
the Jewish diaspora engaged. The Indian authorities, in
contrast, have used this instrument for balance of payments
support, to raise financing during times when they had
difficulty in accessing international capital markets.
Diaspora bonds are often sold at a premium to the diaspora
members, thus fetching a "patriotic" discount in
borrowing costs. Besides patriotism or the desire to do good
in the investor's country of origin, such a discount
can also be explained by the fact that diaspora investors
may be more willing and able to take on sovereign risks of
default in hard currency as well as devaluation as they may
have local currency liabilities and they may be able to
influence the borrower's decision to service such debt.
The paper discusses several conditions for successful
diaspora bond issuance having a sizeable diaspora,
especially first-generation migrants, is understandably an
important factor affecting the issuance of diaspora bonds.
Countries with strong and transparent legal systems for
contract enforcement are likely to find it easier to issue
such bonds. Absence of civil strife is a plus. While not a
pre-requisite, presence of national banks and other
institutions in destination countries facilitates the
marketing of bonds to the diaspora. |
|---|