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A blog about migration, remittances, and development

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This blog is hosted by Dilip Ratha, lead economist at the World Bank. Its goal is to leverage migration and remittances for development.  
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Innovative Financing

New paths to funding: Performance-indexed bonds

Submitted by Dilip Ratha on Wed, 06/17/2009 - 16:42

As estimates of the financing gap in developing countries range from $350 to $635 billion, there are increasing efforts to find new sources and innovative ways to mobilize external financing.  In the latest issue of Finance & Development, Suhas Ketkar and I contributed an article, “New Paths to Funding," which discusses diaspora bonds, performance-indexed bonds and securitization of future remittances and export earnings as possible means for restoring, or starting, access of poor country borrowers to international capital markets.
 
New sources of financing include potential savings from reducing remittance fees. The G8 Global Remittances Working Group has set a 5X5 target - reduce remittance fees by 5 percentage points within 5 years - which could raise more than $15 billion additional, annual resource flows to developing countries. This objective got welcome support from the G8 Development Ministers Meeting in Italy last week. The Leading Group - a group of 55 countries that have come together to explore innovative financing for development - also discussed remittances and diaspora bonds in a meeting two weeks ago in Paris. 

Are there new innovative financing mechanisms in the fast lane?

Submitted by Sonia Plaza on Wed, 12/17/2008 - 15:46

The UN Conference on Financing for Development (FfD) took place in Doha, Quatar from November 30th through December 2nd. The World Bank,  Agence Française de Développement (AFD) and the Bill and Melinda Gates Foundation jointly organized a side event on "Lessons for Practitioners: Innovative Financing for Development."

The main objective of this session was to discuss how innovative financing mechanisms and instruments can be better tailored to the needs of developing countries and make development finance more effective.

For long-term growth and poverty reduction, developing countries need both “smart” public finance-based mechanisms and innovative “market-based” (i.e., private-to-private) financing instruments.  In the current crisis situation, facilitation of cross-border capital channeled to the private sector is of particular significance.

The panelists shared experiences and perspectives on the use of innovative financing using market-based and public finance-based financing tools, and public-private partnerships. They also discussed the role of various stakeholders and facilitators including bilateral and multilateral institutions in the development and promotion of these instruments. In light of the scarce resources available for developing countries:

Innovative financing through migration and remittances

Submitted by Dilip Ratha on Thu, 10/16/2008 - 09:37

Perhaps one of the earliest utilitarians was Charvak (his name literally means "sweet talker" in Sanskrit) who a few centuries ago said, "live happily as long as you live/drink a lot of ghee, and borrow if need be!" Now in the thick of a financial crisis marked by excessive borrowing and lending, one might argue against the Charvak Doctrine. It's true that debt, like fire, can be dangerous ("Don't borrow, because you will get into debt"), but if managed prudently, it can also fuel new projects, new products, and growth and employment in many poor countries.

Last week we launched a book titled "Innovative Financing for Development." In this book we argue that poor countries need additional, cross-border capital channeled to the private sector to generate employment, growth, and poverty reduction. For that, innovative financing mechanisms are necessary. The volume brings together various market-based innovative methods of raising development finance including securitization of future flow receivables, diaspora bonds, and the role of shadow sovereign ratings in facilitating access to international capital markets.

While diaspora bonds (both as financial instruments, and as "ties" with the diaspora) are obviously linked to migration, the chapters in the book explain that (a) properly accounting for migrant remittances can significantly improve sovereign ratings; and (b) future migrant remittances can be used as collateral to further lower the borrowing costs and increase the tenor of loans.