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Bringing It All Back Home

African idealists like Marcus Garvey dreamed of the day when the people of the continent would invest their pooled capital into building the continent. Now, it seems the free market may have found a way to hasten this dream.

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With austerity afflicting many Western markets, it may come as some comfort that so much of the money that flows into Africa from around the world each year comes from Africans. The members of the African diaspora remit around $40 billion back to their home countries every year. With interest rates in the West at historical lows and inflation still high, deposited money is losing value.

Guinean-American Eric Guichard grew up between West Africa and the USA. He worked in the international financial sector and then in the fund management industry. Now based in London, Guichard is working to position his latest venture—Homestrings— in the middle of remittance flows.

Global remittances reached record highs in 2012, totaling $351 billion. “Where it hit me was when I saw the actual global number in transfers and how disorganized that market is—no one is really looking at that mass as a potential source of patient capital,” Guichard says.

A George Washington University study showed that the majority of remitters wanted to use the money to invest at home. In fact, many already do through informal mechanisms—transferring the money to a relative, who then puts it into property or a small business.

Those informal structures work, but are inefficient and rely a great deal on trust. The remitter loses control over the money once it is out of his or her hands. There are a growing number of managed investment funds that target emerging and frontier markets, including in Africa, but few have subscription levels that are accessible to the average retail investor.

Defying the characterization of the members of the African diaspora as poor, the George Washington University report shows that many have above average incomes and significant annual investment portfolios, transferring tens of thousands of dollars each year. They are savvy and the majority use the internet not only for news about their home countries, but also to look for money-making opportunities.

“Being from Africa, and being one of those remitters, I knew that if there was a platform that gave me control and empowered me to choose where I wanted to put my money, I would potentially put all my discretionary capital in that platform,” Guichard says. “If I could choose to invest in this bridge, this healthcare clinic, invest in those sovereign bonds, partake in Actis’ real estate private equity funds at thresholds that are achievable by me, of course.”

Guichard built a platform to do just that. Homestrings is an online portal that connects the diaspora to opportunities back home.

Systems that collect and pool cash from individuals to pump into projects in the developing world already exist—Kiva, for example, has funded a large number of initiatives. However, it is still not permitted to gather cash for investment returns.

Homestrings allows qualified investors to sign up and see investment opportunities—initially projects for co-investment and private equity funds listed on an online portal. There are currently 18 funds listed, targeting Africa, the Caribbean and India. The first “Diaspora bond”, a local currency instrument for international investors, was added this year, with Kenya the first to list.

The result is a traditional mutual fund structure meshed with crowd-funding platforms and online retail systems like Amazon. When social media features are added to it in the next few months, users will be able to review investment opportunities much like Amazon users can rate and discuss their purchases.

“Ultimately, the ideal would be that there are deals that are proposed by the investors, vetted by the members, then organized by Homestrings—a completely self-directed investment platform,” Guichard says.

“Our experience since the launch in August has been quite uniform. We’ve seen registration rates of about 50-100 per month, and that’s with no social network push,” Guichard said. “That’s pretty remarkable for us, the level of interest is that high, and it’s primarily reflective of the three major diaspora groups—Kenyans, Ghanaians and Nigerians, working mainly in professional jobs as doctors, lawyers, financiers.”

Those professionals—of which there are now around 500—have an average of $25,000 to invest per year, according to the company’s own surveys of them.

With the first diaspora bond now listed, and two more—Ghana and Ethiopia—in the pipeline, Guichard is excited about the prospect of financing much-needed infrastructure in Africa, and about offering individuals access to bonds that are normally the preserve of large institutions or local high net worth investors. For their part, governments in Africa have increasingly turned to local capital markets to raise finance for specific projects.

For an international buyer, the process would be long and arduous, requiring regulatory clearance in the destination country and a brokerage account.

“There exists no formal network where people can systematically do due diligence and then invest in their own country’s sovereign bonds targeted at specific projects without going through all kinds of bureaucratic difficulties,” Guichard says.

Homestrings has set up the requisite accounts in Kenya and interested parties just need to register on the platform.

Real estate will be the next step. Guichard hopes to connect developers and investors on Homestrings, systematizing what is already a major use of remittance money. Currently, the process of buying and building at home is long, costly and relies heavily on trust. By allowing professional developers to link up with diaspora capital, and then allowing the diaspora to buy units once they are built, Homestrings takes a great deal of risk out of the system.

“I think the basic proposition is an empowerment proposition,” Guichard says. “You can sit here and look at real estate in Notting Hill, plug in your laptop, use your wi-fi and choose what real estate company you want to select, and look at their catalogue of investments.”

At the heart of the prospect, Guichard claims, is a whole new way of profiling customers in the financial industry.

“We started out with the fact that the way the current financial industry is organized, you are looking at individuals based on age, based on zip codes, based on professions, and based on levels of income, which we see as being a horizontal definition,” he says. “But if you were to look at people in terms of their affinity, in terms of their ethnic allegiances, in terms of their desire to stay connected to where they’re from, then you have a whole new definition of financial services.”

There is also, he says, the potential to change the way that development is financed—crowdsourcing, for profit, long-term capital to drive economic growth in Africa.

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