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Diaspora bonds

Diaspora bonds. Georges Sassine. A new funding vehicle for Lebanon. December, 2011. D iaspora 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.

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Diaspora bonds

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  1. Diaspora bonds Georges Sassine A new funding vehicle for Lebanon December, 2011

  2. 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.

  3. Different diaspora bond structures and performances Diaspora bond background and structure: Israel vs. India vs. Ethiopia Success Success Failure Ethiopia India Israel Objective Economic development Support balance ofpayments Electricity development Timing Annual Issuance Since 1951 Opportunistic Issuance In times of crisis1991; 1998; 2000 Opportunistic Issuance 2008 Structure Fixed, floating rate bondsand 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 Target investors 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

  4. Drivers of success for raising diaspora bonds Diaspora context varies by country Israel India Ethiopia Lebanon Diaspora networks • 7.5M Jewish diaspora – 6M reside in the US. • Unified American Jewish community but recently segregated and slightly weakened organization • 20M Indian diaspora. • Majority in Southeast Asia, but wealthiest in US and EU. • Strong networks: large political, professional, and religious/cultural organizations • 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 Diaspora-govt relationship • 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). • 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 • High perceived corruption • Trust in few institutions including Central Bank Diasporapatriotism • Jewish diaspora unique in several ways. • Strong attachment to Israel driven by religious, political and emotional motivations. Deep sense of patriotism part of the collective norms of Indian society. Divided and fragmented diaspora. • Divided and fragmented diaspora. • Weak national identity.

  5. Summary of drivers of success for raising diaspora bonds Diaspora context varies by country High Med Low Legend: Israel India Ethiopia Lebanon Diaspora networks Diaspora-govt relationship Diasporapatriotism

  6. Context drives diaspora bond strategy Diaspora bond strategy by country Israel India Diaspora engagement strategy Created institutions to strengthen its connection to the Diaspora Created govt body focusing on liaison with the Diaspora Marketing Strategy • Established a selling agency within US and other countries. • Used religious appeal to boost sales of bonds (influence of rabbis among Jewish community) 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 • Attractive financial incentives: • Interest rates 2% higher than US T-bills • Exemption from Indian income and wealth taxes Other Incentives Adopted market reforms to encourage Diaspora investments (improved bureaucracy and corruption)

  7. Diaspora bond strategy for Lebanon Issued for infrastructure project investments or in times of crisis Investments Objective • 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 Economic development Or Support balance ofpayments Timing Opportunistic Issuance Project specific or in times of crisis Target investors Limited to diaspora Diaspora engagement strategy • Establish institution that focuses on strengthening Diaspora connection • Introduce reforms oriented towards engaging Diaspora (i.e. voting rights) Incentives • Patriotism • Deposit guarantee • High interest rates • Tax exemptions (Lebanon and host countries) Marketing Strategy • 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 Structure Fixed rate bonds 5-10 yr maturity $1,000 minimum

  8. 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.

  9. References • Leveraging Migration For Africa Remittances, Skills, and Investments, World Bank 2011 • DilipRatha, Sonia Plaza, Harnessing Diasporas, Finance and Development, September 2011 • Ayah Mahgoub, AmrAbdelrazik, SinafikehGemessa, AvnishGungadurdoss, Diaspora Bonds: The Next Development Miracle, or a Tool with Context-Specific Potential? Harvard Kennedy School - Institutions and Development Course, December 15, 2010 • SuhasKetkar, DilipRatha, Diaspora Bonds As a New Funding Vehicle for Developing Countries, Privatization of Development Finance Conference at NYU, December, 2009 • SuhasL. Ketkar, DilipRatha, Development Finance via Diaspora Bonds Track Record and Potential, Migration and Development Conference at the World Bank, May 23, 2007

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