The Diaspora Investment Alliance (formerly the Rockefeller Foundation-Aspen Institute Diaspora Program), a program of the Aspen Institute in Washington, D.C., has undertaken a diaspora outreach series over the past year to investigate willingness and barriers to investing and/or donating back home. A major finding was that both willingness and barriers to doing so are high among diasporas. Consequently, if effective and efficient avenues to facilitate diaspora impact investing or donating were readily available, many individuals would use them. The starting point is thus an understanding of the reasons why migrants may decide not to invest in origin country development, even when they have both the desire and capacity to do so. Here are some of the major barriers to origin country investment and philanthropy expressed by diaspora communities.
Lack of Information and Transparency
Diasporans often do not have sufficient information on impact investment or donation options to make informed decisions. When it comes to investments, the costs of sourcing and vetting deals are often prohibitive for individual investors, particularly in markets with a lack of credit bureaus. On the donation side, there is an abundance of options – for instance, there are over 3,000 certified NGOs in the Philippines and over 7,000 registered NGOs in Kenya – yet there are no third party ratings (e.g., Charity Navigator) of these agencies.
Legal Challenges
The legal challenges for U.S. diaspora residents to invest in their countries of origin are widespread and complex. Due to strict legislation around investor qualifications (as well as certification procedures of these qualifications), diaspora individuals are often required to meet certain wealth or income thresholds to invest in private offerings. In addition, both issuers and investment intermediaries such as foreign banks and crowdfunding platforms face strict solicitation procedures and high compliance costs. This makes it difficult for diaspora investors to have access to origin country investment opportunities in the first place. With respect to donations, unless donating through a U.S. 501(c)(3) or public charity sponsor, donors are unable to receive a tax deduction. The ability to receive a tax deduction is important, because it offers a financial incentive for diaspora donors.
Implications
Intermediaries are necessary for diasporas to effectively and efficiently invest and donate for social impact in their countries of origin. Legal frameworks for investing and donating need to be navigated in such ways that give diasporans ample incentives as well as ease in the funding process. Additionally, for there to be the greatest development impact, intermediaries must find ways to democratize investment and donation vehicles so that all diasporans may be able to participate. It is equally important for these intermediaries to institutionalize transparency, for instance by creating formal vetting and ratings structures for funding recipients. This open knowledge will meet the needs of diasporans, which will in turn incentivize them to invest in and donate to their countries of origin.
DIA is actively pursuing the development of innovative solutions to address these challenges. In 2015, DIA will pilot several of its solution innovations in partnership with key strategic partners from both the public and private sectors. The successful pilots will be scaled and replicated with global diaspora communities. DIA’s goal is to mobilize $100 million in diaspora capital for development.
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