At Heron, we’re always monitoring new developments in the social finance movement as fodder for improving our own practice. Thus we took note when, earlier this year, Nigeria tripled the size its diaspora bond from $100 million to $300 million.
Diaspora bonds are a creative new form of development finance. Through these bonds, members of a diaspora (i.e. people who have emigrated away from a country) can help pay for development projects “back home.” The creators of diaspora bonds are banking on their belief that immigrants will buy the bonds out of nationalism and nostalgia — as well their desire for modest financial returns. Historically, these emotions have already driven large cash transfers (typically in the form of remittances).
Here’s the Economist’s take:
The idea is simple. Poor-country governments can issue bonds and market them to emigrants in rich countries. There are several advantages to milking members of a diaspora. They are often patriotic: they like the idea that their savings will pay for bridges and clinics at home. They are patient, since they have a long-term tie to the issuer. They are less jittery than other investors, too, since they have friends who can tell them whether political unrest is really as bloody as it looks on television. And they are sanguine about currency risk. If the Zambian kwacha crashes, an expat Zambian can buy his mother a cheap house.
Nigeria isn’t the first country to launch a diaspora bond. Israel, India, and Ethiopia have all issued high-profile diaspora bonds as well, totaling more than $43.3 billion, alongside a slew of smaller issuers.
The Calvert Foundation has also been exploring potential investment initiatives targeting diasporas from Mexico; Colombia; the Caribbean; the Middle East; India; and the Philippines.
Nigeria’s diaspora bond was originally announced by its Debt Management Office in August 2013 as part of its $9 billion Medium Term External Borrowing Plan. The bond will be issued by the International Capital Market (ICM) and is designed to help finance infrastructure development.
Place-based infrastructure investing happens locally in the United States as well. Stay tuned for information on Heron investee Buffalo Niagara Medical Campus. This is the first installment of our series Better Know a Deal, where you’ll hear about Heron’s deals alongside other deals we find intriguing.
Read more of our Better Know A Deal series that offer opportunities to think about impacting society through different types of investments.