Countries look to draw expatriate cash with "diaspora bonds"

[LONDON]A growing roster of developing states are turning to their compatriots abroad to raise cash by marketing "diaspora bonds", a funding strategy successfully pioneered by India and Israel but sometimes tricky to imitate.

Some 250 million people, around 3 percent of the world population, live outside their native countries, according to World Bank data from 2013. They are an important source of funding for their homelands: last year they sent home around $440 billion - three times more than global development aid.

Cash raised by governments directly by marketing securities to their overseas citizens represents just a tiny fraction of that, but looks set to grow, judging by a number of recent announcements.

Egypt has announced debt certificates denominated in dollars and euros to ease hard currency shortages.

Kosovo, which estimates a third of people of Kosovan descent live abroad, proposed issuing bonds for expatriates last month. Sri Lanka discussed such bonds last year, and Nigeria has tried to revive plans for a diaspora issue after naming Goldman Sachs and Stanbic as advisors on a proposal in 2014.

The lure of a diaspora as an investment pool is clear.Investors with a personal link to a country are often happier than other outsiders to take risks in the local currency, and at lower yields, says Dilip Ratha, manager of the World Bank's Migration and Remittances Unit, who advises governments on diaspora funding.

They can also be more willing stick around in a crisis than the big funds that dominate emerging market debt, he added. "When you have hundreds of institutional investors...there is a big probability of herd mentality: You see a little bit of a scare and run for the door," Ratha said. That is less of a problem with a wider pool of expatriate investors scattered across the globe, he added.

Governments dreaming of cheap funds from loyal expatriates in hard times can look to the example of India. Diaspora funds bailed it out from a 1991 balance of payments crisis and raised $4.2 billion in 1998 to offset international sanctions imposed after nuclear tests, double the amount initially sought.

REUTERS