by Dan Kuhnel, Head of Business Development - Issuer Services & Primary Markets, Euroclear
'Diaspora' Eurobonds – Bridging continents to help global communities grow
In this blog, I will use the opportunity to expand a bit on a particular niche financial instrument, just one of many potential instrument types that can be issued using the International Central Securities Depository (ICSD) Eurobond model. The focus of this being specifically on Diaspora Eurobonds issued through Euroclear Bank.
The term diaspora comes from an ancient Greek word meaning ‘to scatter about’. …and that’s exactly what the people of a diaspora do - they spread out from their homeland to new places across the globe, expanding their domestic interests to new regions as a result.
Diaspora bonds are typically debt instruments issued by a country but can be leveraged by a sub-sovereign entity or private corporation. The objective of utilising such a financial product is to raise financing from its overseas diaspora. Issuing these bonds serves as a means for governments to tap into the resources and loyalty of their diaspora communities globally, offering them an opportunity to re-invest in their country of origin. Essentially, Diaspora bonds function as a form of government debt security (i.e. sovereign bonds). Here, expatriates purchase the bonds issued by their home country’s government. Issuing these bonds allows developing countries needing financing to look to expats in wealthy countries for support.
The appeal of Diaspora bonds lies within their ability to foster a sense of patriotism among expatriates whilst simultaneously providing a source of funding for critical projects and/or development initiatives. By issuing these types of bonds, governments can access additional capital at potentially lower interest rates than traditional funding methods, thus leveraging the connection and commitment of their diaspora members.
I add, Diaspora bonds also offer expatriates a tangible route which can be used to contribute to the growth and progress of their homeland; thereby forging a financial link between diaspora communities globally and their country of origin.
I am sure you will appreciate that such financial instruments are of interest in the geo-political environment we are witnessing at the moment.
As noted above, when a government proceeds with issuing Diaspora bonds, it is essentially an investment option targeted to these expatriates, providing them the opportunity to invest in the country’s future development by purchasing government debt securities. Diaspora bonds usually have the usual terms and conditions associated with typical fixed income products.
Once purchased, the funds raised through Diaspora bonds are directed towards various identified projects and initiatives within the country. These can range from infrastructure development to crisis relief efforts. The capital influx from these types of bonds can help governments finance essential development programmes and address pressing economic financing needs.
Diaspora bonds also serve to foster a sense of solidarity and connection among expatriates; providing them with a means to contribute to the welfare and progress of their home country whilst also providing the investor with the potential to earn a financial return on their investment.
Access to capital: Diaspora bonds provide a way for countries to tap into the wealth of their expatriate communities, raising funds that can be used for development projects, infrastructure improvements and other related national needs.
Patriotic investment: These bonds allow expatriates to invest in their home country, fostering a sense of connection and patriotism. This can also lead to a more stable and committed investor base.
Infrastructure development: Diaspora bonds are often used for intra-country development projects, thus providing much-needed resources for continued growth and development.
Economic stability: By attracting investment from abroad, Diaspora bonds can help stabilise an economy and help reduce reliance on foreign aid or outstanding high-interest loan.
Lower risk for investors: Diaspora bonds can be attractive for investors as they offer an opportunity for local investment and are usually shielded from any potential harsh economic environments at home.
In the context of outstanding Eurobonds, several countries have already been involved in the issuance of Diaspora bonds through our issuance and settlement infrastructure.
Euroclear can positively contribute to the overall objective of Diaspora bonds by providing a secure and efficient platform that is accessible to investors across over 90 jurisdictions worldwide. Providing both issuers and investors global access to a wide range of financial products has been part and parcel of our DNA for over 60 years.
Euroclear’s core strengths as an open, resilient and agile industry-owned and -governed market infrastructure are recognised by international banks, supranational organisations, central bank and broker-dealers worldwide. This makes Euroclear a trusted partner for the issuance of Diaspora bonds, ensuring that the bonds are securely and efficiently settled, which plays a part in helping to attract investors across a global ecosystem.
Please contact me to discuss how Euroclear can help support your financing needs across a wide range of financial investment vehicles that we service via our platform.