Sunday, 29 December 2013



By Joshua Chigwangwa
[BA Hons Admin: Dip Public Sector: ZAAT]


Zimbabwe has for the past two decades been experiencing chronic budgetary constraints due to problems originating primarily from the land reform program leading to restrictions in accessing multilateral funding support including development loans invoked  by the Zidera Act of 2001 These restrictions ignited poverty and political instability precipitating a massive human capital flight of desperate Zimbabweans into the Diaspora who are now estimated at plus or minus 4 million people.  An estimated £40 billion in development assistance funding has thus been foregone resulting in the unprecedented deterioration of public infrastructure and services including the collapse of key industries and defaults in international debt repayments. 

The global economic crisis has adversely impacted on confidence in debt markets, many countries including Zimbabwe in particular is as a result also experiencing difficulties in accessing and obtaining private financing which is exacerbated by economic restrictions imposed on the country by the US and its allies in 2001 to date. These difficulties have pushed governments to be innovative and explore alternative means and options of accessing cheap resources. The Diaspora bond is one such facility that has managed to sustain economies in distress and Israel has successfully manoeuvred this instrument to bridge-finance its economy. Due to the rise in domestic poverty, many families have been sustained by remittances from family members in the Diaspora. It is now estimated Zimbabwe received about £1,6bn this year alone according to Finance Minister Patrick Chinamasa, from remittances making it the second largest contributor to Zimbabwe's Gross Domestic Product (GDP). The standards of living of the majority of Diasporas particularly in developed countries has significantly improved over time, which makes it worthwhile to target expatriate Diaspora communities as potential investors in capital investment projects in the form of Diaspora bonds (Db). Research has proved that Diaspora bonds and remittances are a vital source of unrestricted funding particularly in difficult times as has been acknowledged in Zimbabwe that remittances did help prop the Zimbabwean economy from collapsing during its worst crisis point in 2008.


In general, a bond is basically a debt security instrument with an original maturity date of more than 1 year and is also tradeable in the financial markets. A Diaspora bond (Db) is a bond issued by a country to its expatriate citizens' resident in the Diaspora to tap into their accumulated savings. It is an alternative to borrowing from the global financial institutions, capital markets or bilaterally from other governments. The idea of tapping into migrant wealth is not new. The practise of issuing Diaspora bonds dates back to the early 1930s with the first issuers being Japan and China followed in the 1950s by Israel and later by India in the 1990s. The Israeli bonds have been a success story and are estimated to have mobilised an estimated $25 billion in the past 30 years. According to statistics, Israel’s Diaspora bonds accounted for 20-35% of its outstanding external debt between 1983 and 2003.

Source: Publication by Prof G. Hugo: Adelaide University (2006)


In considering the floatation of Diaspora bonds (Db), Zimbabwe needs to draw lessons from Ethiopia. Ethiopia is the first African country to explicitly issue Diaspora Bonds targeted at its nationals living abroad. Ethiopia’s first Db issue in 2008 which was unsuccessful, dubbed the “Millennium Corporate Bond,” was intended to finance the Ethiopian Electric Power Corporation (EEPCO) hydro-electric power project. The bid failed to raise the expected cash revenue due to a variety of internal and external factors. Internally, it was mainly due to the lack of trust in the utility to service the debt, lack of faith and trust in the government’s credit guarantee and the overall volatile political climate in Ethiopia at the time. Externally, this was due to competition from bonds in the migrant’s adopted countries particularly the US and the effects of the liquidity crisis caused by the global economic crisis.

Ethiopia’s second DB issue was in 2011 to finance the 5250W Grand Renaissance Dam Project which was issued this time by the Finance Ministry on behalf of a State Utility and incorporated a number of enhancements such as a more concerted effort to engage with the Diaspora community in target geographic locations. The issue incorporated key investment incentives and was less politically driven. It was primarily the emphasis and enforcement of repayment in convertible currency which made the 2011 bond more appealing to investors living in developed countries.

The table below summarises Ethiopia’s Diaspora Bond Issues.  :-

EEPCO Millennium Corporate Bonds
Grand Renaissance Dam Project
Raising funds for the Ethiopian Electric Power
Financing the Grand Renaissance Dam
USD, Euro and Pound Sterling and other convertible currency, and Birr
USD, Euro and Pound Sterling or Birr
Minimum Denomination
USD 100 denominations but minimum purchase
USD 500
USD, Euro and Pound Sterling, in denominations
of 50
5, 7 and 10 years
5 or between 5-10 years
4%, 4.5% and 5%
Non-interest bearing Option with interest:
5yr: Libor+1.25%
6-7yr = Libor+1.5%
8-10yr = Libor +2%
Payment of the Bond
At maturity, the bold holder can:
 i) receive the face
value of the bond in foreign currency;
ii) purchase
another bond with the same face value;
 iii) deposit in a foreign currency or birr account;
iv) pay for import commitments
At maturity
Payment of the Interest
Every six months
Repayment of the Interest
i) in birr in person; ii) deposit in a foreign currency or birr account; iii) transfer abroad; iv) repurchase additional bonds; v) pay for import commitments
Paid in the currency in which the bond was originally purchased
Transferable to a second party
Transferable to up to three people
Interest income from the bond free from any income tax
Revenue accrued will be free from any tax

 People Move: The World Bank Blog about Migration, remittances and development


In the context of Zimbabwe, there is need for a massive investment on the modernisation of communication tools and technology upgrade that is critical to inducing the Diaspora community to participate in such Capital finance initiatives. There is need for investment in and promotion of increased use of electronic money transfer and payment systems that incorporate international systems such as Pay Pal and BACs to enhance capacity in handling large financial transactions and reduce red-tape. This measure will help alleviate current liquidity problems being encountered and promote wire-transfer payment arrangements thus reducing the need for physical currency circulation of large amounts unnecessarily.  This also facilitates the effective monitoring of the flow of remittances including facilitating the securitisation of foreign remittances using established Money Transfer Operators (MTOs). This will go a long way as well to eliminate current problems being experienced by established MTOs such as which is impacting on public confidence in this system.

Zimbabweans have a high literacy rate and most of its nationals in the Diaspora command high skills mobility potential due to their strong educational background, a legacy of post independence Zimbabwe. A majority of Zimbabweans believe in their culture of investing back home and this is an area where government support is needed to help ensure that these resources are applied in capital projects that have an overall benefit to the aspirations of the nation’s development agenda. This lack of synergy is evident in the thousands of low cost imported vehicles that have ended up making Zimbabwe a dumping ground for vehicles that are beyond their useful life flooding the streets and resulting in a drain of more scarce resources. It is estimated that there are over 500 000 un-roadworthy vehicles in Zimbabwe leading to serious road carnage and a loss to vital human lives. (

Nyaradzayi Gumbodzvanda rehabilitates Magaya School in Murewa from the Diaspora

Nyaradzayi Gumbodzvanda rehabilitates Magaya School in Murewa from the Diaspora

A lot of Zimbabweans show a high degree of patriotism to their country and will engage in Diaspora bonds if the right investment climate is created and promoted. There already are a number of Zimbabweans and organisations engaged in micro-financing of small infrastructure projects such as school building projects and financing the education of children from poor backgrounds in communities they originated from, which is a clear signal that there is potential for this facility to prosper if government initiates efforts to tap the Diaspora market using instruments such as the Diaspora bonds are properly introduced into the market. . ( ) The following link showcases a UK based Zimbabwean paying school fees and upkeep for more than 200 children from her home area in Honde Valley from her personal savings which is quiet remarkable.

Linda Satimburwa brings hope to disadvantaged children in Honde Valley from the Diaspora


Due to the nature of political polarisation and manner in which human capital flight occurred, there is very little or no data available that has a complete mapping of Zimbabweans in the Diaspora making it even more difficult to plan how to effectively target and engage this community due to the spatial distribution and lack of accurate information but the areas of concentration including income data. A lot of the Diasporas suffered from lack of proper documentation in the early years leading to a concentration of low level jobs being taken up, but the situation has changed significantly with more Zimbabweans graduating in various post graduate studies and landing into highly skilled and rewarding jobs of late. There is scant information on how much the Diasporas earn, save and invest, key information that can facilitate effective planning and engagement. The ZIMSTATS Office carried a country profile published in 2009 which is not quiet convincing as detailed on the table below based on the sources of data. 

A National Migration Strategy was carried out by the International Organisation for Migration (IOM) which published a report in 2009. The detailed report attempted to provided comprehensive migration data although it appears the report concentrated its findings in South Africa and included inconclusive secondary data representative of data from other parts of the world. The report is authoritative and identified a number of key issues for the Diaspora community but lacked weighted data and statistics mainly from parts outside the SADC region. The target population that is anticipated to contribute to the Diaspora bond issue is domiciled in the developed countries such as Australia, UK, USA and of Europe and Asia (
The report attempted to show data about the Diasporas spatial distribution based on isolated reports quoted from a number of authoritative sources but to not provide a comprehensive global perspective as it obtains today. The table below shows the summary data: 

Zimbabwe therefore needs to map out detailed information first about its Citizens Living Abroad with a high degree of precision particularly those living in developed countries where there is inconclusive data due to the nature migration patterns, emulating a similar exercise carried out by Australia in 2003 contained in a report published by Professor Graeme Hugo from Adelaide University. See

The thorny issue of weak institutional capacity in Parastatals, rampant corruption and lack of accountability needs to be tackled to restore public confidence. Lack of effective oversight on the prudent operations of state enterprises which has seen some CEOs earning more than 15% of a Parastatals revenue in-flows, at a time when such institutions are failing to pay wages to more than 80% of its workforce including the lack of transparency in the accountability of Diamond revenues are some of the current issues of public concern that to be tackled as well. ( These become key issues of concern for public interest in being responsive to the calls to subscribe to Diaspora bond floatation and entrusting these resources to these institutions. There is need to heal the rifts that have polarised relationships due to the volatile political climate that has prevailed over the past decade. A lot of Diasporas still harbour bitter sentiments emanating from previous political outbursts that have resulted in loss of mutual confidence between the State and the Diasporas. There is need to research on the clarity and suitability of regulations in the respective host countries to gather and ascertain conformity of conditions of the bonds with local enforcement laws across the globe for smooth operation of these bonds. .  

The government is currently facing challenges of political insecurity due to the disputed July 31 polls that are yet to be endorsed by most countries in the developed world and a major stumbling block to mending relations with multilateral institutions. There is need to provide guarantees to policy consistence to reassure the Diasporas that previous decisions that undermined the credibility of the banking sector following the unilateral decisions to collapse Foreign Currency Denominated Accounts (FCA) by the Central Bank will not be repeated. ( The other policy issues that are of Diaspora concern regards challenges emanating from the current liquidity crisis and how it is being managed. A number of indigenous owned banks are struggling to meet depositors’ demands and this casts a shadow of doubt on issues of credibility. ( Other key macro-economic management issues include measures being taken to resolve the £11 billion debt crisis including the protracted illegal economic sanctions that are crowding out government efforts to turn around the economy. 


The Reserve Bank of Zimbabwe (RBZ) set up a subsidiary company Homelink (Pvt) Ltd in 2004 to mobilise foreign currency remittances and facilitate property acquisitions and development  for Zimbabweans in the diaspora, a package significantly mirrors the Diaspora bonds. It is believed the conditions of this scheme were not properly thought out and based more on limited assumptions that were more of a replication of the sub-prime mortgage deals that triggered the collapse of Fraddie Mae in the US and triggered the financial housing cash crisis that ignited the global economic crisis in September 2007. As toxic effects of this scheme sank poisonous fangs midway into its implementation, its venom shocked the product which was also exacerbated by severe foreign currency shortages which hit the domestic market. 

The RBZ compromised the credibility of the deal following a unilateral instruction to its associate MTOs to pay recipients under this deal in local Zimbabwe currency when the Diasporas were compelled to only pay-off the loans  in hard currency which in turn accrued to the Central bank. The decision fuelled the parallel black market causing even more  problems for the economy as the Diasporas opted to deal with the more flexible and even more competitive black market. According to experts analysis, the foreign currency exchange rate offered then by the RBZ was far too low to attract the diaspora market and given that it was also a fixed rate which was not responsive to volatile environment that unfolded as the ripple effects of the global economic crisis were setting. 

The scheme was dealt with a nail in the head in 2008 when the then Acting Minister of Finance Patrick Chinamasa announced the government decision to discard use of the Zimbabwe dollar in preference of the US dollar as official tender. The turn of events made the scheme unattractive leading to the decision in 2011 for the RBZ to ditch non-core quasi fiscal activities. Although financial products under Homelink had been re-engineered to adapt to the volatile environment, a lot of damage had been done to its reputation. A lot of properties under the scheme were repossessed from the Diaspora participants who felt trapped in the devil's dungeon and unrealistic clauses which were part of the packages. It therefore goes without elaboration, that there already exists painful experiences that have scarred both sides giving rise for the need to put more effort in gathering intelligence data and engaging with the Diaspora to remove predatory tendencies and scheming the Diaspora community.


The government through the Budget presented by Finance Minister Chinamasa, earlier this month expressed its interest in engaging the Diaspora to fund some small scale hydro-electric schemes through issuance of Diaspora bonds in return for tax and import duties concessions and participation in the indigenisation programme. In the spirit of transparency and democracy as expounded in Zimbabwe’s new Constitution, it is perhaps advisable that meticulous efforts be made to consult and engage the Diaspora to make an informed input into the complexity of what of form and shape the first Diaspora bond issue should appear like. A one size fits all approach may not attract Diaspora interest taking into account a number prevailing factors as discussed earlier. The offer on the table is only focused on hydro-electric schemes but needs to a have a broader outlook in my view. 

It is advisable and prudent to come up with a basket of unique projects covering different sectors that could be optional such as housing, power generation, health facilities, upgrading of infrastructure, tourism development and transportation, etc. This gives flexibility given access to opportunities differs across the globe as some areas may be ideal to use these instruments with flexibility. It is also vital that a frame work be formulated that guarantees accountability, transparency and effective governance necessary to enforce these contracts given the weak institutional capacity that currently exists.

The government needs to take this opportune moment to offer incentives that can guarantee long term engagement mechanisms with the Diaspora. In mind, it should create conditions that encourage the Diasporas to register with and engage with their respective embassies. This should also come with decentralisation of key services like a quick turnaround in the processing and provision of key documents such as birth certificates and passports among others. The embassies need to be also equipped to help Zimbabweans stranded in the Diaspora for whatever reason to provide a protector of last resort status in times of difficulties to reduce cases of people dying either due to destitution and neglect.  The government needs to foist and demonstrate a culture of caring and genuine concern for its abroad to make this engagement worthwhile and not be construed merely as a desperate measure to callously milk savings and resources from the Diaspora community in difficult times. 


This paper discussed the rationale and potential of issuing Diaspora bonds as instruments of raising external development finance drawing on experiences from Ethiopia. Ethiopia has so far issued two Diaspora bonds, the first one was unsuccessful and the second one generated substantial interest in the Diaspora after suitable adjustments and consultations had been taken into account. There is need to deal with challenges affecting Zimbabwe’s economy which discourage participation of the Diaspora community to engage government in infrastructure development. There is need to engage the Diaspora and carry out an exercise to determine their geographic location across the globe, as well as key data such as skills, occupations, earnings, savings and investments and to promote engagement with embassies regularly for data consistency.  Australia has carried out such an exercise which can be a learning curve. 

The government needs to deal with governance challenges such as rampant corruption, weak institutional capacity and governance polarisation to foster cordial relations with the Diaspora community.  There is need to consult the Diasporas on optional projects that they may be interested in investing in and to formulate a framework that guarantees accountability, transparency and capacity to manage the investments. Lessons from the Home link schemes should be a seriously considered given that this is product that failed dismally, taking into account that there are no immediate signs of the economy stabilising in the short to medium term.


Zimbabwe Bank Manager Assaulted as Clients Fail to Draw Cash (Dec, 2013)

Mapping Issues for Diaspora Participation and Engaging in Zimbabwe’s Reconstruction by Peter Mudungwe (2009)

Migration in Zimbabwe: A Country Profile (2009) by Dr L. Zanamwe and A. Devillard option=com_docman&task=doc_details&gid=10&Itemid=3

People Move: The World Bank Blog about Migration, remittances and development

Sunday, 15 December 2013


I have had brief time to peruse the ZimAsset Blueprint and wish to commend my comrades at home for putting together such a comprehensive document which is the fishing rod for the "Party" to exercise the mandate handed on the 31 July electoral victory. The document has been adopted by Cabinet and as such is now an implementation authority and guiding principle for the State machinery. 

I however need to make some observations which will only serve to make this document more strengthened by way of re-envisioning constructive criticism that will maybe form part of its monitoring and evaluation mechanism. The document lacks mention of the key role of the Diaspora in underwriting its successful implementation. At the recent Diaspora engagement meeting with Hon Minister Mzembi, Diaspora remittances were recognised as the biggest revenue input contributor to the Consolidated Revenue Fund, with remittances from Tourism being the second significant contributor. What this means is that a lot of work needs to be done to understand the nature and relevance of Diaspora remittances and how this feeds into the National Development plans.

How can the Diaspora investments be harnessed to contribute positively to building an income earning structure for the country as opposed to misdirected investment that is more consumptive in nature and hopefully explore a way of supporting Diaspora to invest in sustainable projects that promotes the govt's growth trajectory? According to previous studies, an estimated 67% of remittances to Zimbabwe are channelled through informal means. As the Diaspora, we stand ready to support the initiatives to lobby for the removal of US Sanctions, an albatross hindering the effective implementation of the ZimAsset strategic action plans to revive the economy.

Previous studies carried out have made recommendations for the establishment of a Diaspora Engagement and Institutional Support Framework to cement this strong bond. Due to deficiencies in official data on remittances, it is currently difficult to analyze the macroeconomic impact of remittances on growth and poverty reduction. The Institutional framework which can be done in conjunction with the UZ and Central Statics Office to improve on data collection and reporting systems on remittance flows might help to better understand the flow and impact of both formal and informal remittances. "Despite the lack of official statistics, migrant remittances are a major source of foreign currency as international balance of payments support has dried up. Various studies have established that remittances have helped the Zimbabwean economy to remain afloat despite the negative performance of all other economic sectors. With deliberate fiscal and monetary policies, remittances could be channelled towards local industry through lines of credit and thus help revive local production capacity. " 

With proper engagement that guarantees protection of investment and recourse to dispute resolutions, we can predict to see more investment being directed to key sectors of the economy. We have engaged the embassy to host a trade and investment conference on May 24-25, 2014 and these are part of broader issues which we are focused on under the auspices of the Zimbabwe Business Network (ZBN). Item 2.6 acknowledges that there was a significant flight of skills resulting of effects of the illegal sanctions and it fails to look further and appreciate that this is an opportunity to turn around this brain drain to a brain gain that can be used positively to redress economic performance. The country is fast becoming a dumping ground for Japanese vehicles due to lack of synergy with the Diaspora leading to unwise investment to hard earned incomes. If 2 million people in Diaspora all buy a Kombi, this means we will end up saddled with more cars than commuters and harnessing these resources can prove critical to the long term development of the nation. It may wise to tap into coordinated investments that helps drive the economy. 

The document appears to be more focused on the co-ordination of govt-centric activities and feel it should do more to encompass manufacturing and productive sector growth that is needed to kick start this ailing economy. Item 3.12 on sustainability of Agriculture, there is emphasis on the Presidential Inputs scheme to help farmers and to write-off as irrecoverable electricity debts US$80m, and while this is politically prudent, it is crippling the farmer work mentality to be efficient and productive to the extent of being self sufficient. This has seen the slackening of capacity land utilisation resulting in the productivity substitution in favour of contract farming deals. The overall effect is the dwindling the national strategic grain reserves precipitating reliance on foods imports. Item 7.12 on "Quick wins for the food security and nutrition cluster", states as its first priority, "To intensify collection of maize from Zambia and redistributing to needy provinces,” again while this acknowledge the required shortfall in production, this is pre-empting a national dependency culture.

Do we have proposals to mitigate these challenges in the long run? This trajectory is certainly not sustainable and came as no surprise when Zambia decided to cancel earlier this year, the standing grain import agreement, a development which extraordinary diplomacy manoeuvres to resuscitate the deal. (1) (  (2) As a result ZimAsset at review stage needs to reassure us that this situation is being seriously addressed, this is what will resonate with the people as they get empowered to be the masters of their own destiny.

The document has reassured us that the multi-currency regime will be maintained, but how is this sustainable in the long run without being a draw back to our own growth projections. The recent slump in the US$ against the rand has already started to distort trade with South Africa as the rand is now trading firmer meaning the rand is buying more goods and boosting trade balance in favour of South African Traders. The shortage of US$ notes in circulation is another unintended consequence of using the dollar and of cause the diplomatic farce it dangles with the "sanctions" debacle. There is need to quantify the value and effects of lost business opportunities resulting from lack of accessing the dollar in circulation. Most targets envisaged will be missed if there is no currency in circulation and this also kills the development of small and medium business enterprises. The closure of TN Harlequin resulting in the loss of more than 800 jobs is resulting from lack of demand in the market of its products and can be traced to lack of money circulation in the economy. The current liquidity problems which are constraining banks from lending can partly be addressed by instituting policies that encourage the transmission of remittances through formal means and hence availing remittance funds to financial institutions.

The document fails to fully address the effects of globalisation and how this are impacting on the way we do business on a day to day basis. The issue of introducing international business transaction systems such as PayPal, Pay point and BACs and how this money wire transfer can revolutionaries business in Zimbabwe and help address the challenges posed by the lack of US$ in circulation. The setting up of Special Economic Zones can benefit the economy if conducive instruments that make business flourish are in place and this also helps monitor capital flight and prevent fraud and externalisation of cash subject to tax as gross company earnings. ICT is at the hub of all this and the document is skating over this issue. We need a robust and strategic intent to transform business infrastructure that helps creates downstream industries and small traders which activates and rejuvenates the economy.

The issue of bringing in accountability in the govt thrust towards the management of natural resources needs re-emphasis because the GDP growth targets and projections are anchored on these not so finite resources. These resources need to form the nexus of economic transformation with clear safeguards from plunder. The strategic focus should look at the bigger picture, how these resources can transform the country's economic potential and change the outlook projected into the next 50 to 100 years. The 'Look East Policy' needs to look seriously at how the govt can bring in equipment for the beneficiation of natural resources ahead of sub-contracting foreign firms to assume overall control of these key scarce resources. Gold is Zimbabwe's most important mineral with about 600 registered gold mines across the country comprising about 30 large and medium sized producing an annual output of about 20 tons of gold, which ranks 3rd to South Africa and Ghana in the world top20. So it is of necessity to prioritise the beneficiation of gold internal to boost the market value of final products, boost local enterprise and create employment in highly skilled polishing capabilities.

By exporting raw natural resource, we are technically transferring in excess of approximately 6 000 highly skilled jobs to India and parts of Asia in the diamond sector alone as well as the downstream demand for goods and services from this work force. Looking at other sectors such as steel and ore mining, this means we can technically rejuvenate the economy and create close to 40 000 jobs resulting in increased tax revenue involves and related demand boosting the economy.

To sum up m analysis, there is need for to move out of its shell and engage more with its Diaspora constituency in a way that opens clear lines of communication to transform the way we do business and relate with the wider world. Some of the countries that have successfully engaged their Diaspora Nationals include the likes of the Philippines, India, Mexico, Bangladesh, Nigeria, Morocco, Kenya and Ghana. Lessons learnt indicate a positive correlation between reforms meant to facilitate Diaspora participation, and the actual participation of Diasporas in areas such as investment, remittances, etc. The reforms/policies not only contributed to the Diaspora maintaining social and psychological links with the homeland, but also served as vehicles for building mutual trust and promoting remittances and investments. The fight for the removal illegal sanctions needs to be intensified to free the country from tactics of modern day slavery camouflaged as restrictive measures. The world appears ready to re-engage Zimbabwe and we need to up our game and use the fishing rods at our disposal. 

Joshua Chigwangwa

Thursday, 12 September 2013


Karimazondo Africa International (KAI) an International Private Development, Finance and Investment initiative created to be an economic and development vehicle for Africa linking the Diaspora Communities to impact and bring development to their countries of origin. The KAI intends to initially set up Offices in the United Kingdom, South Africa and Zimbabwe with possibilities of future global expansion in response to investment and development appetite determined by demands in the global environment. KAI will engage with Governments, Non- Governmental Organisations (NGOs), Private Partnership players, Small to medium businesses and Individuals to identify, assess and appraise proposed Development projects on the one hand and link these to potential Investors of varying degrees and proportion subject to agreed terms and conditions to take up investments and impact communities through providing sustainable community development projects.

DIASPORA BONDS (DBs) is a debt note that usually matures (is paid back) in 5–10 years, but the term may be less than one year or as long as 50 years. They can be issued on a fixed or floating coupon basis. Floating rate medium term notes can be as simple as paying the holder a coupon linked to the US$ or can be more complex structured notes linked, for example, to swap rates, treasuries, indices, etc. DBs are most commonly issued as senior, unsecured debt of investment grade credit rated entities which have fixed rates. DBs offer more flexibility to the issuer and investor both in terms of structure and documentation.

This brief account aims at helping you find out about some of the obscure, or unclear, aspects relating to the Private Placement Opportunity Programs (PPOP), also known as Private Placement Programs (PPP), or under other acronyms like Private Placement Investment Programs (PPIP), etc. There are lots of people who know something, but cannot grasp the whole picture.

Large Instruments Market
As a consequence of the previous statements, there is an enormous daily market of discounted bank instruments involving issuing banks and long chains of exit- buyers (Pension Funds, large financial Institutions, etc.) in an exclusive Private Placement arena. All such activities on the bank side are done as "off-balance sheet activities" and as such, the bank can benefit in many ways. Off-Balance Sheet Activities are contingent assets and liabilities, and as such the value depends upon the outcome upon which the claim is based, similar to that of an option.

Private Placement
All programs in the Private Placement arena involve trade with such discounted debt notes in one way or another. And to bypass the legal restrictions, this can only be done on a private level. This is the reason why this type of trading is so different from the "normal" trading, which is highly regulated. In other words, this business can be done and restricted on a private level only (the private Placement level) that falls down in a special regulation without the usual strict restrictions present on the securities market.
The normal trading known by the public is the "open market" (as the "spot market"), where discounted instruments are bought and sold with bids and offers like an auction. To participate here the traders must be in full control of the funds; otherwise, they cannot buy the instrument and sell them on. And there are no arbitrage buy-sell transactions on this market, because all participants can see the instruments and their price.
 However, besides this "open market", there's a "closed, private market" where a restricted number of "master commitment holders" is the inner circle. These master commitment holders are Trust with huge amounts of money that enter contractual agreements with banks to buy a certain number of new issue (fresh-cut) instruments at a specific price during a specific period of time. Their job is to sell these instruments on, so they contract sub-commitment holders, who contract exit-buyers.
These "programs" are all based on arbitrage buy-sell transactions with pre-defined prices, and as such, the traders never need to be in control of the investor's funds. However, no program can start, unless there's enough money behind each buy-sell transaction. And it's here the investors are needed, because the involved banks and commitment holders are not allowed to trade with their own money, unless they have reserved enough funds on the market-- money that belongs to the investors which is never used and never at risk.

The Safety
The real core of KAI trading and its safety is due to the fact that we arrange the buy-sell transaction as arbitrage, which means that the instrument will be bought and sold at the same time with a pre-defined price, and that a chain of buyers/sellers are contracted, including the exit-buyers who often are institutions, other banks, insurance companies, big companies, or other wealthy individuals. The issued instruments are never sold directly to the exit-buyer, but to a chain of up to 3-7, or even perhaps 50 investors. The involved banks cannot for obvious reason directly participate in this as in-between buyers and sellers, but they are still profiting from it indirectly, because they are lending out their money (with interest) to the trader, or to the investor as a line of credit. This is the Leverage. Furthermore, the banks profit from the commissions involved in each buy-sell transaction of debt bank instruments in the trading circle.
You can also realize now why in these Private Placement Programs, the investor funds are always safe without any trading risk, or whatever other risk, except for the normal bank system risk (a bank can still virtually go bankrupt.)