27 February 2013, CIFOR news - A study conducted by the Center for International Forestry Research (CIFOR) indicates that ready access to external credit has empowered households to establish and manage commercial tree plantations on a wide-scale throughout Viet Nam.

The study, titled "Financing Household Tree Plantations in Vietnam," finds that 20 years of land transfers from the State have left rural households with 50-year use rights to 40 per cent of the country's tree plantations, or twice that managed by the once-dominant State owned Forestry Companies. Currently, these smallholder tree plantations mainly supply the pulp and paper industry, but hold high-value potential for the country's growing furniture export industry as well.

According to the report, the transformation was made possible largely by Viet Nam's targeted programs and state-owned banking system, which has helped 70 per cent of rural households in the country gain access to external credit.

The study, however, notes that not all forms of credit perform equally on all measures. It examines five key programs, including World Bank reforestation loans under the Forest Sector Development Project; German International Development Agency (GIZ) grants to kind and savings accounts; and loans offered by the Vietnam Bank for Agriculture and Rural Development.

Each of these programs are evaluated in terms of their value for investment-, surplus-, and survival-oriented households, according to seven criteria: availability; financial and operational sustainability; leakage to other productive activities; household access; cost to households; risk to households; and match with households’ finance requirements.

The resulting analysis identifies critical tradeoffs between alternative financing models, particularly between leakage and financial sustainability; financial sustainability and accessible, affordable and low-risk support; and wide geographical coverage and farm households’ finance requirements.

In light of these tradeoffs, the report recommends that policies for smallholder forest finance should adopt a loan-based approach to household support; charge commercial interest rates; require loan recipients to form small groups; and operate through the Bank for Social Policies or equivalent institution.