Reducing poverty, creating employment, and building schools and roads for the benefit of billions of people in developing countries requires large amounts of funds. But there are not that many new sources of funding that can be tapped for such noble purposes. The migrants of developing countries offer a rare pool of resources that can be tapped via diaspora bonds.
According to estimates from the United Nations, there are more than 200 million migrants worldwide. The size of the global diaspora is even larger if one considers adding second- and third-generation migrants to the mix.
The money these migrants send home -- in the form of remittances, usually through money-transfer services like Western Union -- each year is considerable. Migrants from developing countries sent more than $325 billion in remittances last year.
All this is well documented and exhaustively studied by academics and development experts. What's less well known, perhaps, is the enormous savings these migrants have amassed. Preliminary estimates by the World Bank suggest that annual savings of the diasporas from developing countries could be in the range of $400 billion. For those from Africa, the figure is estimated at $52 billion.
These savings are mostly held as cash under the mattress or in low-yielding bank accounts in the countries of destination. Imagine if some of those savings were channeled into development efforts in poor countries. If one in every 10 diaspora members, whether rich or poor, could be persuaded to invest $1,000 in his or her country of origin, developing countries could potentially raise $20 billion a year for development financing.
Enter the diaspora bond -- a retail saving instrument marketed only to migrants. Through retailing diaspora bonds at small denominations ranging from $100 to $1,000, a developing country government or a reputable private corporation in a developing country can tap into the wealth of relatively poor migrants. Wealthier migrants could, of course, invest larger amounts and the bonds would also be sold in large denominations to institutional and foreign investors.
The money could then be used to finance projects that interest overseas migrants -- such as housing, schooling, hospitals, and infrastructure projects with a concrete benefit to their families, or the community back home.
Diaspora bonds can tap into the same kind of emotion migrants feel when cheering on their national team in a football match, a long way from their homeland. Patriotism could in effect become the effective tool for helping a developing country fulfill its development dreams.
There is also a readymade marketing avenue to target the diaspora. These bonds can be sold globally to diaspora groups through national and international banks and money transfer companies. They can be marketed through churches, community groups, ethnic newspapers, stores, and business associations in places where migrants live in large numbers. Investment bankers may be needed to structure these bonds and ensure compliance with securities regulations in the United States and other jurisdictions.