Diaspora bonds could come in useful to raise money for infrastructure projects


Kenya has recently moved to raise funds from the international market through issuance of foreign bonds, notably the successful floating of a $2 billion (Sh202 billion at current exchange rates) Eurobond in 2014.

This success has led the government to consider looking into other sources to raise more funds and has been flirting with such options as interest-free Islamic bonds, Samurai bonds, and more recently, diaspora bonds.

Diaspora bonds are usually issued for investment by a country’s non-resident citizens.

This is considered to be a viable alternative to borrowing from the international capital market, multilateral finance institutions, or bilateral agreements.

It is also attractive since it carries a lower rate of return than a bond ordinarily would and repayment is usually in the local currency.

It is also a way to shore up foreign currency reserves in the local economy.

The practice dates back to the 1930s when China and Japan used this source of financing.

Israel from the 1950s, India from the 1980s, and more recently Nigeria, have successfully exploited the issuance of diaspora bonds as a debt instrument.

For Israel, this source of financing has been ongoing due to the close relationship the government has kept with its diaspora.


Diaspora bonds are typically used to finance large-scale infrastructure development.

Raising cash from the diaspora constituency could be appealing if it is earmarked for projects that appeal to the diaspora such as infrastructure, housing, or social amenities.

The diaspora constituency knows the value of such developments since it normally has such infrastructure in its countries of residence.

The major assumption in the issuance of a diaspora bond is the amount of remittances the diaspora sends back home.

It is assumed that a high level of remittances is a sign that this block can easily be tapped to raise funds for investment.

This seems to be the case for Israel, India, and Nigeria.

As at the end of 2013, personal remittances into Israel were about $5 billion (Sh505 billion), which pales in comparison to India’s $70 billion (Sh7.07 trillion) at the end of 2014.

Nigeria’s was $21 billion (Sh2.12 trillion).

Thus, Israel’s issuance of a $500 million (Sh50.5 billion) diaspora bond was easily subscribed while Nigeria’s 2014 bond was conservatively placed at $100 million (Sh10.1 billion).


The Israeli Government can easily float this bond to its citizens in the US as it is registered by the US Securities Exchange Commission (SEC).

Both India and Nigeria are not SEC-registered and thus have faced setbacks raising funds from their citizens resident in the United States.

A successful issue also depends on the confidence the diaspora has in the government of the day.

Ethiopia’s attempt at diaspora bonds has failed on two occasions.

This is largely attributed to the low level of confidence the Ethiopian diaspora has in its government due to lack of transparency in government business as well as a stifled democracy.

Diaspora remittances to Kenya stand at $1.5 billion (Sh151.5 billion) a year on average.

Although much lower than India’s, Nigeria’s, or even Israel’s, this can still represent a substantial amount that can act as an indication of the ability of Kenya’s diaspora to invest in such debt.

The Eurobond issue of $2 billion is much higher than the diaspora remittances, therefore, it would be a stretch to issue such a bond.


However, this does not mean that medium-sized infrastructure projects (of say $100 million — Sh10.1 billion — to $0.5 billion — Sh50.5 billion) cannot be financed from diaspora finances.

However, like in the case of Ethiopia, the government should not expect that the diaspora will take up such an investment without guarantees and safeguards.

First, the projects must be viable. The management of the bond itself must be transparent.

This may mean bringing on board credible partners such as the African Development Bank and co-opting members from the diaspora on a board to manage such finances.

If the government does not build confidence in its governance systems and accountability inculcated in its handling of finances, a diaspora bond may not be successful.