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 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.

Bibliographic Details

Main Authors:	Ketkar, Suhas L., Ratha, Dilip
Language:	English en_US
Published:	World Bank, Washington, D.C. 2004-08
Subjects:	ACCOUNTING, ASSET CLASS, ASSET-BACKED SECURITIES, BALANCE OF PAYMENTS, BALANCE OF PAYMENTS CRISIS, BANK DEPOSITS, BANK OF ISRAEL, BANK POLICY, BASIS POINTS, BOND, BOND ISSUANCE, BOND ISSUE, BOND SALES, BONDS, BORROWER, BORROWING, BORROWING COSTS, BORROWING POLICY, BORROWINGS, BROKERS, BULLET REPAYMENT, BUSINESS LAW, CAPITAL MARKET, CDS, CENTRAL BANK, CENTRAL BANK OF SRI LANKA, CERTIFICATES OF DEPOSITS, CLASS ACTION, COMMERCIAL BANKS, COMPETITIVE BIDDING, COMPETITIVENESS, CONTINGENT LIABILITIES, CONTRACT ENFORCEMENT, CONTRIBUTIONS, CORPORATE BONDS, COUNTRY RISK, CREDIT RATING, CREDIT RATINGS, CREDITWORTHINESS, CURRENCY, CURRENCY DEVALUATION, DATED SECURITIES, DEBT, DEBT INSTRUMENT, DEBT MARKET, DEBT SERVICE, DEBT SERVICE PAYMENTS, DEFAULT PROBABILITIES, DEFAULT RISK, DEPOSIT, DEPOSITS, DEVALUATION, DEVELOPING COUNTRIES, DEVELOPMENT BOND, DEVELOPMENT BONDS, DEVELOPMENT FINANCE, DISCLOSURE REQUIREMENTS, DOMESTIC BANKS, DOMESTIC INVESTORS, EAST EUROPEAN, ECONOMIC IMPLICATIONS, EXCHANGE COMMISSION, EXPOSURE, EXTERNAL DEBT, EXTERNAL FINANCE, EXTERNAL FINANCING, EXTERNAL INDEBTEDNESS, FEDERAL RESERVE, FINANCIAL COMPANIES, FINANCIAL CRISIS, FINANCIAL INSTRUMENTS, FINANCIAL RESOURCES, FINANCIAL RETURNS, FINANCING REQUIREMENT, FIXED RATE, FIXED RATE BONDS, FLOATING RATE, FLOATING RATE DEBT, FLOW OF CAPITAL, FOREIGN BANKS, FOREIGN CURRENCY, FOREIGN CURRENCY DEPOSITS, FOREIGN DEBT, FOREIGN EXCHANGE, FOREIGN EXCHANGE RESOURCES, FOREIGN FINANCING, FUND INVESTMENTS, FUTURE RESEARCH, GLOBAL ECONOMIC PROSPECTS, GOVERNANCE INDICATOR, GOVERNMENT BONDS, HOME COUNTRY, HOST COUNTRIES, HOUSING, INCOME, INCOME FLOWS, INCOMES, INFLATIONARY EXPECTATIONS, INFORMED INVESTORS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL INVESTMENTS, INTERNATIONAL INVESTORS, INTERNATIONAL TRANSACTIONS, INVESTING, INVESTMENT OPTIONS, INVESTMENT VEHICLES, INVESTOR BASE, INVESTOR INTEREST, ISLAMIC BOND, ISLAMIC BOND ISSUANCE, ISLAMIC BOND MARKET, ISLAMIC BONDS, ISLAMIC DEBT, ISLAMIC FINANCE, ISLAMIC LAWS, ISSUANCE, JURISDICTIONS, LEGAL SYSTEM, LEGAL SYSTEMS, LIQUIDITY, LOANS FROM BANKS, LOCAL CURRENCY, MARKET INTEREST, MARKET INTEREST RATES, MARKET PRACTICE, MARKET PRICE, MARKET PRICING, MARKETING, MARKETING STRATEGY, MATURITIES, MATURITY, MIGRATION, MISMANAGEMENT, MONETARY FUND, NATIONAL BANKS, PER CAPITA INCOMES, PRESS RELEASE, PRIME RATE, PURCHASES, RATING AGENCIES, REAL ESTATE, REDEMPTION, REGULATORY REQUIREMENTS, REGULATORY SYSTEMS, REMITTANCE, REMITTANCES, REPAYMENTS, RESERVES, RETAIL INVESTORS, RETURN, RETURNS, RISK MANAGEMENT, RISK OF DEFAULT, RISK PREMIUM, SALE, SAVINGS, SAVINGS RATE, SECONDARY MARKET, SECURITIES, SECURITIES LAW, SECURITIES LAWS, SECURITIES REGULATION, SENIOR, SHORT-TERM DEBT, SKILLED WORKERS, SMALL BANKS, SOVEREIGN ENTITY, SOVEREIGN RISKS, STATE BANK, STOCKS, SUKUK, TIME DEPOSITS, TRACK RECORD, TRACK RECORDS, TREASURY, TRINIDAD AND TOBAGO, UNDERWRITERS, WEALTH, ZERO COUPON,
Online Access:	http://documents.worldbank.org/curated/en/2004/08/8066254/development-finance-diaspora-bonds-track-record-potential https://hdl.handle.net/10986/14311
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