The frailties of diaspora bonds

Abstract

The interest in diaspora bonds is sustained by the theoretical potential to finance development in poor economies by raising funds from expatriate communities, often labor migrants, living abroad. At the start of the COVID-19 pandemic in 2020, as developing nations faced sudden reversals in capital flows, diaspora bonds were hypothesized to counter the international capital markets’ volatility. A year later, the most recent bout of portfolio ‘de-risking’ and less optimistic outlook for emerging markets by the international institutional investors may prompt renewed calls for tapping into diaspora. But is the alternative scheme so easily deployable?

Diaspora bonds are sovereign debt securities issued by countries appealing to the altruistic motives of their cultural and national diasporas across the world. Historically, there have been several attempts to leverage the diaspora premium, with Israel and India running the most effective diaspora bonds initiatives.

Read full article here.