Diasporas are groups of individuals that have emigrated from their country of origin. They may also be a largely untapped and valuable resource for driving sustainable development. The strong ties that diaspora population members possess for their home country often translate into significant sums of money sent back home to family, friends, and businesses - or remittances. For developing countries, remittances can have a significant impact on the local economy. According to the Migration Policy Institute (MPI), formal remittances totaled nearly $450 billion USD globally in 2010. While larger countries like India, China, and Mexico consistently remain in the top 3 remittance receiving countries by monetary values, smaller countries often experience a more significant impact to their overall GDP.
1. Large & Affluent or Well-Connected Diaspora Network
The size and affluency of a specific diaspora network relative to home country population is perhaps the most important factor to successfully leveraging diaspora communities for sustainable development. Small countries must first evaluate the current state of their diaspora network globally. India has the largest diaspora population worldwide and sits at the number one slot for remittance receiving countries according to the World Bank in 2014. The U.S. Indian diaspora hold advanced degrees at four times that of the U.S. general public and have a median annual income approximately $40K above the U.S. median. Furthermore, about half of all U.S. Indian diaspora households fall into the top 25% of annual income across the entire U.S. income distribution.
However engagement levels can trump diaspora size when working to maximize diaspora benefits. For example, Tajikistan’s network of 602,821 is dramatically smaller than India’s 16 million, Tajikistan’s diaspora significantly impacts the local economy because 89% of the diaspora population sends remittances. The Caribbean global region is another example of significant impact. An InfoDev study found that the Caribbean diaspora nearly matches the region’s native population in size. The members’ common heritage and strong familial relationships across the entire region allow for a deep connection and a strong desire to contribute. Of the people surveyed, 90% would like to be more connected to their home country.
2. Confidence in the Government and Donor
Investors uncertain of whether or not the people or organization handling an investment can be trusted are highly unlikely to go ahead with the transaction. Following the devastating Haitian earthquake in 2010, diaspora bonds were widely considered to assist in recovery. It was common for remittances to surge in Haiti following natural disasters, so diaspora bonds were considered by the government and donors a viable option. But Haiti’s history of weak governance and a general lack of trust in public institutions made efforts to raise funds through diaspora bonds difficult and unsuccessful.
While its neighbor India has successfully implemented diaspora bonds, Pakistan has yet to do so. The Pakistani population has an extremely low rate of confidence in its national institutions with 84% of individuals stating they have “not very much” or “no confidence at all” in Pakistan’s federal government. In 2010 during the Pakistan floods, many Pakistani-Americans were hesitant to send money to relief efforts out of fear that it would end up in the pockets of a corrupt government. Countries with high levels of corruption must first inspire confidence for diaspora groups to feel comfortable contributing to impact investment.
When there is a lack of confidence in the local government, donor agencies may be able to fill the gap with social impact investing instruments. Of course, donor agencies must inspire the same level of confidence a strong government would to attract investors.
3. Risk & Return: Transparency and Clearly Outlined Guidelines for Investment Projects
Diaspora bonds hold an advantage as they are often perceived as having a lower risk of devaluation because the bonds frequently pay out in local currency with a 4-5% interest rate. “Patriotism” as a motivator will only go so far; it is critical to create a transparent process that ensures low risk and promise of return on investment.
The most effective to gain investor trust is to create an environment of total transparency. Gaining the trust of an investor is the key to creating individuals who invest in multiple projects over various years. Total transparency, accountability checkpoints, and unwavering regulations are critical. Investors want to know what they are investing in, when they can expect a return on their investment, and what that return will look like. An investor wants to see the physical impact of their investment, whether it be schools, libraries, housing, or other public institutions. Enticing the investor largely relies on value they perceive in the use of their funds. Many governments and independent investment entities rely on emotional ties to attract diaspora investors. However for those holding money in low-yielding bank accounts or cash under the mattress type savings, the opportunity to grow savings through accumulated interest can be very alluring.
Ms. Bustamante supports business development and program management at McCO. She brings experience in program design and management gained at the U.S. Peace Corps and with an environmental non-profit in India. She holds a Bachelor's degree from George Washington University.