Source: DEVEX IMPACT
by Adva Saldinger 05 February 2015
Diaspora populations have long sent money back to their countries of origin in the form of remittances. Now, a new initiative led by the U.S. Agency for International Development and the Calvert Foundation seeks to tap that capital and put it to work more strategically.
It’s a test case, but if successful, it could be inspire similar efforts to better leverage other diaspora funds for development impact.
The Indian Diaspora Investment Initiative, a partnership between USAID, the Calvert Foundation and several private financial institutions in India, was announced with much fanfare last week by U.S. President Barack Obama.
The first-of-its-kind initiative seeks to tap the Indian diaspora in the United States — and not just high net-worth individuals, but also retail investors — to help fund development in India.
It’s the first time that USAID has partnered on and helped design this type of initiative; innovative is how the initiative democratizes the investment opportunity, giving investors without huge sums the ability to participate as well.
“We have been progressively, over last several years really, embarking on a new model of development in the agency,” said Manpreet Anand, USAID’s deputy assistant administrator in the Asia Bureau. “Nowhere is that more important or significant than in a place like India. This new model is predicated on the fact that the typical donor-recipient relationship is not the best way to encourage development in a country.”
The strategy has been to engage a new set of stakeholders — in this case the Indian diaspora.
The vehicle for investment will be the Calvert Foundation’s standard community investment note, though it will be branded and marketed toward the Indian diaspora community. The note has a 20-year track record of performance and is currently held by more than 5,000 investors.
Investors can purchase the note either through their investment adviser or through the Calvert Foundation’s online platform vested.org, where people can invest in a note for as little as $20.
The note will be used to buy debt from Indian financial institutions, which will then lend to social businesses in key sectors like health, food security, education and financial inclusion.
“How we approach our investing, broadly, is impact first and last,” said Jennifer Pryce, president and CEO of the Calvert Foundation.
That means any potential investment goes through a social screening even before the due diligence and financial screenings. Social impact is reported alongside financial basis on a regular basis.
In conjunction with the Calvert Foundation note, USAID’s Development Credit Authority will provide a credit guarantee for at least $50 million to support Indian financial institutions which provide funds to social businesses that target the base of the pyramid.
According to Anand, there are three motivations for USAID: channel diaspora investments in a focused and more sustainable manner, help tackle an existing financing gap for Indian small and medium-sized enterprises focused on social outcomes, and capitalize on a key moment in the relationship between the United States and India.
This initiative has required USAID to do things it has never done before, he said, from carrying out a market assessment to understand the motivations of the community and what they would look for in an investment product to sorting out how to make it work legally, which requires a careful delineation of roles.
The market assessment, conducted last year, suggested the Indian diaspora community is ripe to tap. It’s a large community — more than 2 million-strong — which has a higher average household income than other diaspora groups; many Indian emigrants are already engaged in philanthropic efforts.
Feedback from the Indian diaspora community to both USAID and the Calvert Foundation since the announcement has reaffirmed its interest in pooling and more strategically using remittances to boost development in India.
The note, which will open later this year, will raise up to $10 million. The Calvert Foundation wants to only raise as much as it can deploy effectively. It is not just about how much money the note raises, Pryce said, but about who the investors are. A larger number of new investors would be preferred to just a few making large investments.
“This is not meant to be done as a one-and-done,” Anand said. “Part of the reason we are investing so much of our own time and energy and resources is we believe this can pave the way, be a model that is utilized in other countries around the world.”
Anand would not speculate on what this initiative could mean for other USAID projects in the future, but he suggested the agency is at the “cusp” of something and there are many lessons ahead.
“Although it is an investment product, there is a human side to this that is complicated and nuanced — that’s where a lot of the innovation lies,” Pryce said.
This effort, she said, is a combination of science and art and if it succeeds in activating a new resource, it could be powerful not just in India but in other countries as well.