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Design of a Remittance-based Financing Vehicle to improve household infrastructure and resiliency for Pacific Island Communities

Design of a Remittance-based Financing Vehicle to improve household infrastructure and resiliency for Pacific Island Communities

Convergence awarded a feasibility study grant to the Basel Agency for Sustainable Energy (BASE), in partnership with Oxfam in the Pacific, for the development of a remittance-based financing vehicle that aims to advance sustainable micro-infrastructure development and climate resilience and adaptation action in the Pacific Islands. A sizeable portion of the population in the Pacific Islands live and work along its coastlines, exposed to climate events such as land erosion, flooding, and cyclones. Frequent natural disasters in these under-resourced small island states result in damages worth millions of dollars. Much of the physical damage and associated social and economic devastation can be avoided by investing in sustainable and resilient infrastructure. While remittances are an important source of income for people in the Pacific Islands, the potential for remittances to enhance climate resilience has not yet been realized in the region.

Convergence’s feasibility grant, awarded through the Indo-Pacific Design Funding Window, will enable BASE to explore the feasibility of a remittance-based financing mechanism for micro-infrastructure products such as roof strappings and solar panels to enhance household resiliency for Pacific Island residents, many of whom live along the coastline. BASE will design a locally relevant vehicle that enables migrant workers from the Pacific Islands, who live and work abroad, to channel part of their remittance payments towards investment in resilient micro-infrastructure products for their families back home. The feasibility study will have a significant focus on community engagement. BASE will provide the expertise in structuring, as they have designed similar structures in Latin America, and Oxfam in the Pacific, will leverage its local partnerships and presence in the Pacific Islands. BASE’s work with remittances complements Oxfam’s activities related to cash-transfer in the Pacific region, as Oxfam has been actively pursuing innovative interventions that promote community-based resilience, especially in response to natural disasters.

Design question and learning potential for the market: How can remittances be leveraged to create a self-sustaining, financing mechanism for investments?

During the feasibility study, BASE will develop the structure and financial flows for this mechanism tailored to the Pacific Islands. Based on prior mechanisms implemented in Latin America (Haiti; 2012 and Bolivia; 2015), it is expected that migrant workers from the Pacific Islands will direct part of their periodic remittance flows for resilient micro-infrastructure housing improvements for their families back home. It is expected that to purchase the resilient housing products, loans will be taken by the migrant workers (or their families) from local financial institutions (FIs) in the Pacific Islands. To make these loans, local FIs may take on debt from international impact investors. The products for improving household resiliency will be marketed and channeled through money transfer organizations or other money transfer service providers in the region.

After an initial pilot, the mechanism is expected to be self-sustaining, envisaged to mobilize USD 35 million into local economies, and impact 9,000 households. The identified target countries in the Pacific Islands are Samoa, Tonga, Fiji, Vanuatu and Kiribati. After an initial screening, three countries will be shortlisted for the feasibility study.