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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

Diaspora bonds

Georges Sassine

A new funding vehicle for Lebanon

December, 2011

slide2

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.
slide3

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

slide4

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.
slide5

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

slide6

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)

slide7

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

slide8

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.
slide9

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