Kenya eyes diaspora bonds to fund key infrastructure projects

Kenya is exploring an innovative financing model to support its ambitious infrastructure projects by tapping into diaspora bonds, a move championed by Prime Cabinet Secretary Musalia Mudavadi.

This approach seeks to leverage the substantial financial power of Kenyans living abroad, who continue to play a significant role in the country’s economic development.

Diaspora bonds are debt instruments that allow governments to raise funds from their citizens living abroad.

These bonds have already proven successful in countries such as Israel, India, and Nigeria. Kenya aims to follow suit, creating a unique opportunity to diversify its funding sources and reduce the pressure on traditional revenue streams.

According to Mudavadi, diaspora bonds could offer Kenya below-market borrowing rates with extended maturities, making them an attractive option compared to conventional loans. Additionally, Kenyans in the diaspora, who already contribute significantly to the economy through remittances, would gain insurable interests in transformative projects, fostering a sense of ownership and connection to their home country.

“Diaspora bonds provide an innovative solution to finance signature infrastructure projects while easing fiscal pressure. This model allows us to tap into international markets through the diaspora advantage,” said Mudavadi during a recent economic forum.

Kenya’s diaspora has demonstrated remarkable financial strength. Remittances from Kenyans abroad reached USD 2.8 billion in the first seven months of 2024, compared to USD 2.4 billion in the same period last year. This steady growth underscores the potential of diaspora bonds as a reliable funding avenue.

The government is working with the Multilateral Investment Guarantee Agency (MIGA) to structure a new diaspora bond, ensuring the initiative is credible and attractive to investors.

Kenya’s robust legal and regulatory framework positions it well to implement diaspora bonds effectively. The model aligns with the government’s broader strategy to explore alternative funding sources amid challenges in revenue collection.

“The introduction of diaspora bonds is critical at a time when Kenya needs to finance transformative projects without straining its fiscal resources,” added Mudavadi.

Kenya draws inspiration from countries like Israel, which has used diaspora bonds to build infrastructure and sustain its economy. India and Nigeria have also issued such bonds with considerable success, highlighting the viability of this model for Kenya.

As Kenya advances discussions on diaspora bonds, the government remains optimistic about the potential of these instruments to fuel its infrastructure ambitions.