by Margot Kane and Leigh Moran
May 8, 2014
Over the past few years there has been an increasing interest among development organizations and aid agencies in harnessing the financial resources of various global migrants to fund development needs in their countries of origin or heritage. As Calvert Foundation has one of the few investment products available to retail investors that want to invest in international development, we have been forming partnerships to investigate how we can use our investment platform to facilitate diaspora or migrant investment flows.
Over the past year, we have been exploring potential investment initiatives targeting diasporas from Mexico; Colombia; the Caribbean; the Middle East; India; and the Philippines. Our partners in this work include the W.K. Kellogg Foundation; the U.S. Department of State’s Office of Global Partnerships; and USAID. As a result of our research, Calvert Foundation became the new managing member of a public-private partnership, IdEA, the “International Diaspora Engagement Alliance.” IdEA was launched by the State Department in 2010 as a platform to harness the energy and resources of diaspora communities for a wide range of development and diplomatic purposes.
Calvert Foundation approached the diaspora investment initiative without a development agenda, but from the perspective of a fund with expertise in raising and deploying capital from individual investors. We understand the complexity involved in creating such an initiative and that a diaspora initiative will only be successful by working with strong partners with expertise in the areas where we are lacking. This post is the first in a series in which we will share some of our lessons learned to date on the complex issue of engaging U.S.-based diasporas to invest in development agendas in their identified homelands or countries of heritage. Here we cover some of the key issues to consider when creating a strategy to engage diasporas in international development.
Among many lessons learned in our explorations to date, we now know that engaging diasporas in both investment and development requires consideration of several complexities. Each of the subjects below has deep implications for diaspora work. Click on the lessons learned below for an overview of the key issues:
Diaspora means “to scatter” in Greek, but today we use the term to describe a community of people who live outside their shared country or community of origin or ancestry but maintain active connections with it. Human mobility is a key point, in that our common understanding of diaspora involves movement across international boundaries (e.g., not including internally displaced persons). There are other nuanced levels of understanding around what makes someone a member of a defined “diaspora,” including the level of awareness around the need or desire for a link with the homeland; the homeland’s own definition and treatment of its emigrants; and the ongoing cultivation of relationships between the source and destination communities. For example, a group of American citizens identify as members of the Persian diaspora that fled the Shah’s kingdom at the time of massive upheaval in that nation – they do not necessarily identify fully with the Islamic Republic of Iran if they feel a disconnect between their memories of their secular homeland and the Islamic State that Iran is today. Lack of diplomatic relations between their country of origin and their new home in the U.S. might further complicate this identity dilemma.
We recognize the challenges of discussing diasporas writ large as diaspora is often used as a catch-all term for an incredibly diverse group of people, including migrants, refugees, expatriates, immigrants and their descendants. Diasporas are not monolithic, but nuanced, complex and constantly changing.
Arguably, here in the U.S. we are all members of at least one diaspora. In the context of the development agenda, however, the prevailing focus on and definition of diasporas are diasporas who maintain home country engagement; who identify with transnational communities; and whose interests overlap with those of development agencies and agendas, which are both politically and morally driven.
Importantly, many diasporas do not identify first and foremost with their “country” of origin or heritage. While Development Financial Institutions (DFIs) and bilaterals craft their development strategies at a national level, nationalism is a relatively new concept for much of the globe; it’s been a necessary construct in the U.S. because we are a constantly evolving mix of hundreds of “nations,” but in many countries such as Kenya, India, the U.A.E. or Mexico, national identity is not necessarily a person’s first and foremost. Their most emotive or meaningful identity might be their religious affiliation; it might be their provincial origin; it might be tribal or based on ethnicity. Crafting a call to action based on emotional ties to a home country could fall on deaf ears if the diversity of diaspora identities is not addressed.
In order to engage diasporas in a financial way, you have to understand how they currently manage their resources, capacities, and interactions with the financial sector(s) in both their present contexts and those of their present investment targets. Income levels play a role, but savings levels are more distinctive – one possibility is that recent diasporas to the U.S. with closer ties to home save at much higher rates than the general population in order to transmit these savings to relatives in their international communities. Use of savings – and investment approach – is determined in part by income as well as financial access (both in the U.S. and in the home country) as well as familiarity/education with financial investment products. The latter we know to be a significant lack throughout the U.S. population, given our general failure to provide basic financial literacy training; this challenge in feeling empowered to manage one’s finances is not limited to recent émigrés.
Some diasporas in the U.S. are unbanked or under-banked – particularly those without legal documentation. These people primarily utilize check cashers and trusted remittance intermediaries like Western Union and Viamericas. Some have distrust or suspicion of formal financial services, particularly if they have had bad experiences in the U.S. due to racial or ethnic profiling. This speaks generally to the challenge of access to the formal financial system at both ends of the transaction. For example, the recently released report “Economic Status and Remittance Behavior among Latin American and Caribbean Migrants in the Post-Recession Period” documents the challenges of channeling remittances into the formal banking sector. For the Latin American and the Caribbean populations surveyed in the report, 60% of migrants reported having bank accounts in the U.S., but only approximately 30% of remittance recipients had bank accounts. According to the report’s lead author, Manuel Orozco, “there are many barriers that make it difficult for migrants and remittance recipients to open bank accounts, including residency requirements, legal documentation, and even outdated requirements such as having a telephone landline.” Orozco told us that the opportunity cost for getting into the system is extremely high, noting that banks are not typically in the areas where migrants live. Our hometown of Washington, D.C. holds an example of financial disenfranchisement: as you move southeast and northeast across the city into lower income neighborhoods, the number of bank branches drops drastically.
Meanwhile, mobile banking is far more advanced in developing nations than in the U.S., and there may be a leapfrog opportunity for it to gain traction among diasporas as a means of investment due to their familiarity with such platforms in other countries, although to date mobile banking largely remains constricted within national boundaries (and has not universally proven to be profitable for the intermediaries). For example, the Kenyan mobile money transfer system M-PESA is used by over 17 million Kenyans, equivalent to more than two-thirds of the adult population; it’s estimated that around 25% of the country’s gross national product flows through it. Recent diasporas may rely upon mobile channels for investment options rather than traditional financial advisors or brokerages, or through remittance companies such as Boom Financial.
While transaction fees on remittance platforms have, through competition, been lowered to reasonable levels, transactions costs on other types of investments can be quite high. For example, brokerage accounts where a person can individually buy and sell shares in, say, the nascent Jamaican stock exchange, are even more challenging – many require minimum deposits of $1,000 or more; getting low-volume, international financial products on the platform can be nearly impossible to do. Especially in the current global interest rate environment, there might not be a suitable investment product if transaction costs outpace the rate of return.
In Calvert Foundation’s case, as we think about the different channels through which an investor typically participates in our Community Investment Note – such as online, through their financial advisor, or directly through a brokerage account on a platform like Charles Schwab – it is critical for us to understand the “how” a diaspora member might invest and the barriers they might encounter along the way, as well as the where and the why.
Trust, different habits around managing finances, and legal/administrative barriers to participation are significant issues to consider when creating a strategy to link diasporas in the U.S. to financial channels of investment, one that most investment platforms now do not tend to consider outside of remittance firms.
Mapping and measuring remittance flows has been a large part of defining a potential role diasporas could play in supporting broad economic development in places where aid money goes only so far. Global remittance flows are estimated to reach $581 billion in 2014 – their highest levels ever. According to the World Bank’s data on country-level remittance transfers in 2013, India received the most remittances with $70 billion; “other large recipients were China ($60 billion), the Philippines ($25 billion) and Mexico ($22 billion). In terms of remittances as a share of GDP, the top recipients were Tajikistan (52 percent), Kyrgyz Republic (31 percent), Nepal and Moldova (both 25 percent), Samoa and Lesotho (both 23 percent), Armenia and Haiti (both 21 percent).”
This paints a compelling picture, but it is only part of the picture. According to Orozco, while the largest proportion of migrants engages in remittances (80%+), there are other measurable investments happening, such as capital investment (estimated to be 5 – 15% of the economic transfers to homeland); philanthropy (5 – 20%); and consumption of home country or nostalgic goods (80 – 90%).
While remittances are often characterized as “unproductive” investments, the reasons and motivations behind remittances are complicated and do not necessarily translate into a willingness among diasporas or migrants to invest in more productive means of economic development. Many remittances are simply household to household transfers to support costs of living, education, etc. Michael Clemens and Timothy Ogden of the Financial Access Initiative argue in that remittances have been inaccurately framed and that remittances are in fact a return on investment; the cost of moving a family member to access a different labor market. They describe migration as “one of many financial tools [families] juggle to smooth income and consumption.”
Some remittances certainly represent informal “peer-to-peer” lending or business investment, where there is no legal protection or obligation between the parties, but a personal understanding. Some remittances are donations to support local development projects: schools, wells, or other public goods that a hometown association or local development group is organizing.
Some remittances are legacy accounts, where second and third generations living in the U.S. feel a distant obligation to remote family connections but have little interest in identifying with those relatives and their local contexts.
Because the vast majority of remittances are household to household, they speak to diaspora interest in investing in their specific family, hometown, or community. In other words, it speaks to the importance of a hyperlocal context to diasporas. They do not necessarily point the way to interest investing in an impersonal, indirect proposition or along national development agendas.
Certain countries have put programs in place in attempts to leverage and formalize the power of remittances, most notably Mexico’s Tres por Uno program in which for every dollar raised by a Hometown Association in the U.S. for a specific project, each of the three levels of Mexican government (municipal, state, and federal) will match it dollar for dollar. However, similar to remittances, this program has been criticized for “unproductive” in that it doesn’t address the reasons for migration in the first place (e.g. job creation), bringing into question the utility of remittance platforms when striving to meet development objectives.
Generation is important to understanding diaspora investment as the motivations and mechanisms tend to vary by generation. Typically, earlier generations are more familiar with and/or committed to direct remitting/giving – to relatives, through Hometown Associations or other migrants organizations. Further removed generations tend to approach giving back on a less personal basis as they do not have the connections to facilitate such specific engagement.
However, this distance from direct experience in a country of origin does not necessarily translate to a lack of interest. Further removed generations of diasporas often want to connect with their countries of heritage, but in a different way than their parents, grandparents or great-grandparents, etc. Online technologies and social media communities have presented an opportunity for these generations to create transnational identities in ways that had previously been unavailable to them. They are less dependent on prior generations and freer to express themselves in a way that incorporates their values with their heritage that is very different than previous generations. As a generation, Millennials have demonstrated their desire to engage in advocacy and conscious consumerism through online channels and communities and present an opportunity to create “digital diasporas,” to borrow a term from Jennifer Brinkerhoff’s book of the same name.
From our perspective, the generation question is extremely important. By 2018, the majority of the nation’s young will be people of color, and the majority of these will be of Hispanic origin. Engaging our youth to invest in a sustainable future for our nation requires that we develop messages that speak to their unique circumstances and backgrounds not only as youth but as people of color and members of diasporas. Even while the Millennials and younger generations stand to inherit the largest wealth transfer in U.S. history, this wealth transfer is likely to follow current inequitable income trends and economic classes, leaving the new “majority minority” without the resources of earlier generations.
As Orozco also suggested to us, that there are economic justice issues to consider when appealing to diasporas to invest in international development. Many diasporas living in the U.S. are economically vulnerable in part due to the fact that they are a member of a particular diaspora – including some of our largest diasporas (like Mexico and the Caribbean). U.S. policies, prejudice, and structural economic inequalities contribute to the vulnerability of these diasporas, even as they may be fleeing worse economic situations or political risks. Is it a just approach to develop and market international investment options for these communities alongside perceived development issues in their home countries, when we could be instead creating ways for them to invest in the place they live right now – in access to healthcare, healthy and affordable housing near jobs, quality education, vocational and language training, individual development accounts and college savings accounts? To pose that question in a different way, are these communities more interested in investing in their future here in the U.S. than in their past, and where should we be encouraging their investments?
Calvert Foundation is uniquely positioned to explore this aspect as we invest globally, with a current portfolio of $129 million invested in community development organizations and projects in the U.S. alone, specifically targeting affordable housing, quality schools, access to finance, and community revitalization.
As Warren Buffet, Bill Gates and other U.S. billionaires have discovered in promoting their “Giving Pledge” outside of the U.S., the western world’s cultural norms around philanthropy do not always translate easily into other cultures. The practice of philanthropy is radically different – or even absent – in many developing contexts. Diasporas living in the U.S. do not necessarily acquire U.S. norms around giving back for the broader social good – instead their emotional call to action is often based upon sending significant spare resources to their direct relatives, hometowns, or educational institutions.
Similarly the concept of investing for both a financial and a social return may be even more contradictory in other cultural contexts. Studies have documented that social and emotional motivations play a role in diaspora investment; however it is not clear if those motivations translate into a willingness to accept a lower financial return for a higher social return. In part, this is due to the lack of products that provide the opportunity to do so.
According to a survey that explored the investment habits of participants in the African Diaspora Marketplace (“ADM”), a business planning competition focused on diaspora entrepreneurs from Sub-Saharan African, conducted by Liesl Riddle and the GW Diaspora Capital Investment Project, “although participants expected to receive financial gain from investments in their countries of origin, expected emotional gains and family concerns were the most important reported drivers of ADM participants investment interest.” However, “Only 5% had experience in funds charging below market interest rates, despite the fact that over 1/3 of participants expressed interest. Similarly, while 40% of respondents expressed interest in lending funds charging market rates, only 6% have made such investments. The least activity (3%) was reported for funds lending money without charging interest.” 
There is growing interest amongst wealthier individuals from various diasporas to practice impact investing in their countries of origin, showing that this concept may be gaining increasing traction. A survey of US-Mexico Foundation’s audience cited a strong interest in investing small amounts of capital for social good (nearly 60% said they would be interested in investing up to $1000), specifically in education and community development sectors in Mexico.
Investing for both social impact and economic development can be a challenging proposition among all audiences. It also depends on your working definition of impact investment. The World Economic Forum report “From the Margins to the Mainstream” articulates that to be a true impact investment, a transaction must have intentionality behind it for social reasons as well as a financial return and positive social or environmental impact that is actively measured. Meanwhile, the elements of transparency, trust, legitimacy, affordability, and fairness – arguably lacking in many investment options available in the U.S. today – are of huge importance to diasporas, and for good reason. While some international investment schemes have been just that – schemes – migrants in the U.S. have often suffered first-hand from practices of predatory lending and financial products– and, we can’t help but point out, even top-rated investment funds have been effectively swindled in recent years by opaque Wall Street products, costing pensioners and retirees significant portions of their retirement assets. Recognizing that the impact investing industry’s reporting requirements still need to mature in many ways, but looking to the future, does the added layer of social reporting that impact investments require make them better suited to meet desired levels of transparency and fiduciary standards?
Here’s a more concrete example of how the concept of “impact” investing can be challenging in a diaspora-specific context:
Most impact investors in the U.S. would not consider a commercial grade bond issuance to build, let’s say, a bridge, an “impact” investment. However imagine that bridge is in the West Bank; and imagine the Palestinian Authority doesn’t have sufficient funds to build it on its own, and is constrained in its ability to raise cash in international markets due to the precarious position of the Palestinian state. Does Nesim, a Palestinian-American, investing in an inaugural Palestinian bond issuance to build the bridge out of patriotic intent therefore count as an impact investor? Would this investor require a fully risk-adjusted financial return? Does the concept of a blended return – both social and financial – matter in this context, where just getting Nesim to invest overseas for a financial return is a challenge to overcome, not to mention the tax documents he will have to complete for this investment?
The morass of international investment regulations, costs and barriers, transparency and access issues, and the habit of diasporas to focus on remittances as well as mistrust of institutions in their countries of origin all combine to make even traditional investment a challenge in many places. Many of the people we’ve spoken with working to attract diaspora investment into their home countries focus first and foremost on enabling diasporas to invest, full stop – with as compelling a financial return as can be generated. Many of these opportunities still harbor significant flaws, regulatory challenges and other shortcomings, with the major issue still being that there are not enough products available to meet what is estimated to be a very robust demand among middle income “non-accredited” investors, which is the population that Calvert Foundation targets through its retail investment note platform.
We’d also pose the question of whether the most compelling case for impact investing is the financial return. If diaspora traditionally support initiatives at home based on personal and social ties, wouldn’t the social return be a more compelling proxy than the financial return? Further, if diasporas are looking for a safe and meaningful way to invest their money, impact investing has unique positioning capability in these communities.
Whether we can find the right match among specific audiences, appropriate channels and transparent communications with a diaspora community and high-impact investments in their identified homelands is our challenge, and one we hope you’ll help us solve!
Stay tuned for future posts on the opportunities presented by new crowd funding platforms; tactics for engaging Millennials; and previews of the 2014 Global Diaspora Week (Oct 12 – Oct 18 2014).
Please share your ideas & comments on any of these issues & the many others we haven’t covered!
Special thanks to Manuel Orozco for his significant contributions to this blog
 As with any diaspora conversation, this gets complicated. For example, many Mexican Americans living in the southwest U.S. can trace their local ancestry back to before the thirteen British colonies were established – they do not necessarily feel a strong tie to the modern Mexican nation, nor do they consider themselves a U.S. diaspora.
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 “Why does Kenya lead the world in mobile money?” The Economist. May 27 2013. Economist. Web. May 7, 2014.
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 Riddle, Lisel. “African Diaspora Marketplace: Investment Interest Survey.” The George Washington University Center for International Business Education and Research. 2012. Business GWU. Web. May 7, 2014.
 U.S. Mexico Foundation survey of members. November 2013.
 The World Economic Forum Investor Industries and Deloitte, Touche, Tohmatsu. “From the Margins to the Mainstream: Assessment of the Impact Investing Sector and Opportunities to Engage Mainstream Investors.” World Economic Forum. September 2013. Weforum. Web. May 7, 2014.
 Del Rio, Deyanira. “Mortgage Lending and Foreclosures in Immigrant Communities: Expanding Fair Housing and Fair Lending Opportunity among Low Income and Undocumented Immigrants”. Kirwan Institute for the Study of Race and Ethnicity. February 2010.
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