Diaspora bonds
A new funding vehicle for Lebanon
December, 2011
Georges Sassine
Diaspora bonds …
One way to tap Lebanon’s diaspora
•
Lebanese diaspora funds are a massive untapped
potential … Lebanon could raise on average more than
$1 billion a year.
•
Diaspora bonds have been successfully used by other
countries. A strategy for Lebanon can be developed by
drawing on others’ experiences.
•
Many countries are exploring the possibility of issuing
diaspora bonds including: Morocco, Greece, Ghana,
Liberia, and the Philippines.
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Georges Sassine
Different diaspora bond structures and performances
Diaspora bond background and structure: Israel vs. India vs. Ethiopia
Success
Israel
Objective
Timing
Structure
Economic development
Annual Issuance
Since 1951
Success
India
Support balance of
payments
Failure
Ethiopia
Electricity development
Opportunistic Issuance Opportunistic Issuance
In times of crisis
2008
1991; 1998; 2000
Fixed, floating rate bonds
and notes
Fixed rate bonds
Fixed rate bonds
1 to 20 yr maturity
+ bullet repayment
5 yr bullet maturity
$2,000 minimum
5,7, and 10 yr maturity
$500 minimum
NOT limited to diaspora
Limited to diaspora
Limited to diaspora
Incentives
Patriotism; Slightly
high interest rates
Patriotism; high
interest rates
High interest rates
Performance
Raised $31 Billion
Raised $11.3 Billion
Raised $200,000
Target investors
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Drivers of success for raising diaspora bonds
Diaspora context varies by country
Israel
Diaspora
networks
•
•
Diasporagovt
relationship
•
Diaspora
patriotism
•
•
•
7.5M Jewish
diaspora – 6M reside
in the US.
Unified American
Jewish community
but recently
segregated and
slightly weakened
organization
India
•
•
•
Right of Israeli
•
citizenship to any Jew.
Israel proved its
commitment to defend
the Jewish Diaspora
•
(rescuing Jews from
countries of distress and
re-settlements).
Jewish diaspora unique
in several ways.
Strong attachment to
Israel driven by
religious, political and
emotional motivations.
20M Indian diaspora. •
Majority in Southeast
Asia, but wealthiest
•
in US and EU.
Strong networks:
large political,
•
professional, and
religious/cultural
organizations
Ethiopia
Lebanon
2M Ethiopian
•
diaspora.
40% in North America,
30% in Asia, and 22% •
in ME & EU.
Median household
income in US is
$43,460.
4M-15M
Lebanese
diaspora.
Strong
networks: large
political,
professional,
and religious
organizations
High perceived
corruption
Trust in few
institutions
including
Central Bank
Low diaspora trust in
govt: perceived red
tape and high
corruption
Democratic state of
govt provides sense
of stability and
security
Significant share of
current diaspora left
Ethiopia in opposition of
the political system
•
Deep sense of patriotism
part of the collective
norms of Indian society.
Divided and fragmented
diaspora.
•
•
•
Divided and
fragmented
diaspora.
Weak national
identity.
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Summary of drivers of success for raising diaspora bonds
Diaspora context varies by country
Legend:
Israel
India
Ethiopia
High
Med
Low
Lebanon
Diaspora
networks
Diaspora-govt
relationship
Diaspora
patriotism
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Context drives diaspora bond strategy
Diaspora bond strategy by country
Israel
Diaspora
engagement
strategy
India
Created institutions to strengthen
its connection to the Diaspora
Created govt body focusing on liaison
with the Diaspora
Marketing
Strategy
•
Used informal Indian diaspora networks
and organizations
Financial
Incentives
Changed its policy of selling
discounted bonds and increased
interest rates slightly above US T-bills
Other
Incentives
•
Established a selling agency
within US and other countries.
Used religious appeal to boost
sales of bonds (influence of
rabbis among Jewish community)
Attractive financial incentives:
• Interest rates 2% higher than US T-bills
• Exemption from Indian income and
wealth taxes
Adopted market reforms to encourage
Diaspora investments (improved
bureaucracy and corruption)
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Georges Sassine
Diaspora bond strategy for Lebanon
Issued for infrastructure project investments or in times of crisis
Objective Economic development
Investments Financing should benefit the whole
society without preference to specific
regions or religious groups. Example:
National infrastructure projects –
operated by trustworthy institutions:
• South-North Railway project
• Oil & Gas pipeline
• Refinery plants
Or Support balance of
payments
Timing
Opportunistic Issuance
Project specific
or in times of crisis
Target
Limited to diaspora
investors
Incentives • Patriotism
•
•
•
Deposit guarantee
High interest rates
Tax exemptions
(Lebanon and host
countries)
• Establish institution that focuses on
Diaspora
strengthening Diaspora connection
engagement
• Introduce reforms oriented towards
strategy
engaging Diaspora (i.e. voting rights)
Marketing
Strategy
•
Structure Fixed rate bonds
5-10 yr maturity
$1,000 minimum
•
Tap into existing Diaspora networks:
Political organizations; professional
organizations (Lebanese-US
Chamber of Commerce); academic
organizations (AUB Alumni Chapters);
religious organizations
Establish selling agencies in key
geographies
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Actions required to successfully raise diaspora bonds
Tailor strategy to the Lebanese context
• Data gathering & analysis
Need to better understand the norms that shape the Lebanese Govt-Diaspora
relationship. Need better statistics on the volume, wealth and location of the Diaspora.
• Engage Diaspora
A state can successfully and sustainably extract obligations from its Diaspora only if it
extends rights to that Diaspora.
• Strengthen diaspora links
Need to establish institutions focused on Govt-Diaspora liaison; build allies with existing
informal diaspora networks; establish selling agency in key geographies.
• Identify projects to invest in
Identify projects that would benefit the whole society without preference to specific
regions or religious groups; governing institutions should be perceived as trustworthy and
non-corrupt.
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Georges Sassine
References
• Leveraging Migration For Africa Remittances, Skills, and Investments, World Bank
2011
• Dilip Ratha, Sonia Plaza, Harnessing Diasporas, Finance and Development,
September 2011
• Ayah Mahgoub, Amr Abdelrazik, Sinafikeh Gemessa, Avnish Gungadurdoss, Diaspora
Bonds: The Next Development Miracle, or a Tool with Context-Specific Potential?
Harvard Kennedy School - Institutions and Development Course, December 15, 2010
• Suhas Ketkar, Dilip Ratha, Diaspora Bonds As a New Funding Vehicle for
Developing Countries, Privatization of Development Finance Conference at NYU,
December, 2009
• Suhas L. Ketkar, Dilip Ratha, Development Finance via Diaspora Bonds Track
Record and Potential, Migration and Development Conference at the World Bank, May
23, 2007
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End
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