Diaspora bonds could help developing countries

They represent opportunities for immigrants to fund important economic programs in their nations of origin

In 1988, Naser Kaid left his home in the Ethiopian city of Jimma to seek opportunity in Canada. His widowed mother stayed behind, and Kaid is her only lifeline.

What Kaid can afford from his wages as a Toronto taxi driver, he sends home to his mother. It’s usually $ 50 to $ 100 a month and it’s the only income she has. In November, 2011, she needed surgery. Kaid scraped together the money to cover the operation. He considers it his responsibility.

“Life is hard here,” Kaid says. “But at the same time you have to remember those elsewhere.”

In 2010, immigrants to Canada sent more than $ 12 billion to support the families they left behind. To put it in perspective, that’s $ 4 billion more than all the money Canadians gave to charity, and over $ 6 billion more than Canada spent on international aid that same year.

When the world population passed seven billion in October 2011, the UN Population Fund dedicated an entire chapter of its State of the World Population report to issues around migration. One fact that caught its attention was the absolutely staggering amount of money immigrants around the world are sending back home.

The World Bank estimates that, by 2013, more than $ 404 billion will be travelling around the world every year from immigrants back to their families. That’s almost three times more than all the developed countries in the world put together spent on international aid in 2010.

The Hudson Institute, an American think- tank, has studied global remittances — the money that immigrants send back to their countries of origin. According to the institute, these remittances play an important role in fighting poverty in developing countries. Families that receive money from family members abroad tend to have a better quality of life, and are better able to survive shocks like natural disasters.

With tough economic times forcing many donor countries to scale back on international aid, is there a way to turn the hundreds of billions flowing from immigrant communities into an even more effective tool against poverty? There’s one very interesting possibility: diaspora bonds.

Canadians should be familiar with Canada Savings Bonds. You buy them from the government of Canada in amounts as little as $ 100. When you redeem them months or years later, you get your money back with interest. It’s a great way to save money, and it creates revenue our government can use to provide the services we rely on, such as health care.

Diaspora bonds work much the same except, as suggested by their name, they are sold by countries such as Ethiopia to their immigrant communities living abroad. Diaspora bonds can make developing countries more economically stable and, potentially, can be used to support development projects to fight poverty.

Diaspora bonds are not new. Israel was the first to issue them in 1951. In 1991, India used diaspora bonds to help recover from a major economic crisis.

Some African countries — including Kenya, Ethiopia, and Nigeria — have begun to issue bonds in the past two years. Greek immigrants in Canada and other countries are looking to diaspora bonds as a way to save their homeland from its massive debt crisis.

The World Bank offers one example of how diaspora bonds could be employed to aid development. There are more than 1.5 million Haitian immigrants in Canada, the U. S. and France. If 200,000 of these each bought $ 1,000 in bonds, they would raise $ 200 million to support postearthquake reconstruction in Haiti.

It seems to us that Canada could be supporting diaspora bonds as a costeffective way to increase resources for fighting poverty. Here are few ideas that might be explored: Canada could act as an international guarantor for development- dedicated bonds. Our government could help promote these bonds to immigrant communities, or give tax credits to immigrants who purchase them.

There are risks in diaspora bonds. Because the money from bonds goes to governments, in some developing countries there is the potential for mismanagement or corruption. The Canadian Chapter of the World Council of Hellenes Abroad, for example, prefers that the European Central Bank or the International Monetary Fund control any funds from diaspora bonds. They believe the government of Greece is in disarray and cannot responsibly manage the money.

Here again Canada can play a role, helping reduce the risks. Through partnership Canada can support bonds designated for specific approved projects. We can provide technical assistance to recipient countries, building their capacity to manage the bonds with accountability and transparency.

We see a creative opportunity with diaspora bonds to not only increase resources for development, but also empower our immigrant communities to help their families back home. More than that, by investing in these savings bonds new Canadians will be investing in their own financial security.

Naser Kaid thinks diaspora bonds are brilliant. He’s seriously considering investing in the new bonds available from Ethiopia.

“It’s one of the best ideas,” he says. “Countries can use the money, it doesn’t cost you much, and you get it back!”