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Kenya: Government Set to Benefit From Diaspora Bond
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Business Daily (Nairobi)
29 April 2008
Posted to the web 29 April 2008
Steve Mbogo
Kenya is to launch a diaspora bond to help it direct the increasing amount of remittances to development projects and act as a source of cheaper credit to the Government.
Concern abounds that a significant amount of remittances sent by the diaspora is used for direct consumption without getting into long term investment and savings, diminishing the money's impact on the development of the country.
The World Bank is leading efforts to offer Kenya and several other African countries setting up financial instruments of their choice to tap into remittances. Its final roll out report will be released in June and the setting up of bonds across several countries is expected later in the year.
It will involve technical assistance from the bank to help Kenya develop a Diaspora Bond or any other acceptable instrument that will help tap remittances. The financial instrument to be developed will enable the Central Bank to use remittances as collateral for bond issues and loan securitisation.
Last year, the Government through the Ministry of Planning fast tracked efforts to come up with such a venture. According to the Government's strategy paper then, the interest from the World Bank was expected to help fast tract efforts towards that end.
A Government committee to deliberate how to set up financial instruments to capture remittances was set up and is being coordinated by Edward Sambili, permanent secretary of planning. The committee is expected to work closely with the World Bank officials. Efforts to get progress from the Government side were fruitless after the Ministry of Planning failed to get back on our questions.
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Dilip Ratha, senior economist responsible for migration and remittances at the World Bank told Business Daily that no African country has yet issued a diaspora bond, except Ghana which has recently announced a saving scheme that has elements of a diaspora bond.
The bond is a debt instrument issued by a country or a private corporation to raise financing from its overseas residents. This relatively unexploited instrument can raise investments from international migrants for economic development in the home country. Data from the World Bank shows that sub-Saharan African countries can potentially raise Sh1.3 trillion every year by issuing Diaspora Bond and by securitising future remittances and other future receivables.
Diaspora bonds are also seen as a viable opportunity to for repatriating Africa's flight capital, estimated at more than $170 billion by the World Bank. The tapped money will be used to finance social developed and the country will get to pay the debt in local currency which eliminates the risk of foreign currency fluctuations.
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