Exploring the Potentials of Diaspora Ṣukūk for OIC Member Countries

Abstract

Diaspora bonds, for the issuing country, are believed to constitute a new source of external funding which is more stable and cheaper than the traditional instruments. For the investors, they represent an opportunity to meet, in a more efficient way, current liabilities in local currency back home, and to contribute to the development effort of the origin country by participating in the financing of infrastructure projects. With remittances inflow estimated at $136 billion, in 2014, the OIC member countries have at their disposal an untapped source of external funding as substantial as the Foreign Direct Investment and larger than the Official Development Assistance. This paper explores the adaptability of Diaspora bonds to the concept of Ṣukūk. The paper argues that the investors’ base for Diaspora Ṣukūk is potentially wider than that of the Diaspora bonds in OIC countries and that it would positively impact the cost of capital for the issuing country. However, the success of Diaspora securities issuance largely depends on variables such as the size, the wealth, the level of education of the Diaspora as well as investors’ trust in the issuing entity. The assessment of the OIC countries with respect to the above-mentioned factors reveal the existence of potential candidates. Thus, for the success of Diaspora Ṣukūk, the countries are encouraged to gather quality data on their Diaspora, to implement a well thought communication strategy, and to earmark the proceeds of Diaspora Ṣukūk to projects appealing to the Diaspora.