NB Financial Health

Friday
May 16
2014

Margot Kane and Leigh Moran

Engaging Diasporas in Development Through Investment – Part 2: Calvert explores ways to facilitate migrant investment flows

Editor’s note: Calvert Foundation explored ways to facilitate diaspora and migrant investment flows in their recent post, cross-posted with permission in two parts on NextBillion. Part 1 can be read here, and part 2 (below) discusses more key issues to consider when creating a strategy to engage diasporas in international development.

Generation matters

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, which 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.

Should diasporas invest abroad if they are disinvested at home?

As Manuel Orozco also suggested to us, there are economic justice issues to consider when appealing to diasporas to invest in international development. Many migrants 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 health care, 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.

Culture eats strategy for breakfast

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 percent had experience in funds charging below market interest rates, despite the fact that over 1/3 of participants expressed interest. Similarly, while 40 percent of respondents expressed interest in lending funds charging market rates, only 6 percent have made such investments. The least activity (3 percent) was reported for funds lending money without charging interest.”

There is growing interest amongst wealthier individuals from various diasporas in practicing 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 percent said they would be interested in investing up to $1000), specifically in education and community development sectors in Mexico.

Does “impact” investment play a role?

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 standards and 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 to who are 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, finding 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 crowdfunding platforms, tactics for engaging millennials, and previews of the 2014 Global Diaspora Week (Oct 12 – 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.

Margot Kane is vice president of Strategic Initiatives, and Leigh Moran is a senior officer on the Strategic Initiatives team at Calvert Foundation.

Categories
Entrepreneurship, Impact Assessment, Investing
Tags
Calvert Foundation, diasporas, impact investing, investment fund, poverty alleviation, social impact