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Financing smallholder tree planting: Tree collateral & Thai ‘Tree Banks’ - Collateral 2.0?

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  • Starfinger, Marcel

Abstract

Smallholder foresters are amongst the key stakeholders for sustainable development and productive land use. In Thailand they face various challenges including insufficient tenure, burdensome commercialization, and limited access to markets. Similarly, forestry specific financial services are often unavailable. Key obstacles include cash flow constraints attributed to the long gestation periods and a lack of conventional collateral to obtain loans. As a response to the lack of sustainable financing mechanisms for forest smallholders, tree collateral and Tree Banks emerged in Thailand. This paper depicts the evolution of the innovative Thai tree collateral approaches and conceptualizes their intricacies. Tree collateral refers to the use of trees as a business security for loans. Thailand’s innovative national Tree Bank systems provide the context for this case study. Based on expert interviews (n = 39) and subsequent secondary literature review as well as process tracing, the article explores potentials and shortcomings of the tree collateral approaches in Thailand. There are significant conceptual and ideological differences between the two Tree Bank institutions, namely the Tree Bank BAAC (Bank of Agriculture and Agricultural Cooperatives) and Tree Bank CSO (Civil Society Organization). These differences focus on the need to include private land together with trees as collateral. In addition, core constraints remain for tree collateral such as limited tenure and valuation procedures and high gearing ratios. The discussion of risks reveals mainly socio-economic and financial risks for smallholders and financing institutions. Standardization procedures and mitigation strategies including micro-insurances are indispensable. The process tracing revealed causal mechanisms that lead to tree collateral, including aggregation amongst smallholders as well as specific enabling policy reforms. Tree collateral represents an innovative and promising tool but is not the ‘silver bullet’ that magically solves the financial challenges of smallholders. Rather it is niche-specific and requires a series of broader prerequisites for successful and low-risk implementation especially in the context of smallholder forestry.

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  • Starfinger, Marcel, 2021. "Financing smallholder tree planting: Tree collateral & Thai ‘Tree Banks’ - Collateral 2.0?," Land Use Policy, Elsevier, vol. 111(C).
    • Handle: RePEc:eee:lauspo:v:111:y:2021:i:c:s0264837721004889
    DOI: 10.1016/j.landusepol.2021.105765
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    References listed on IDEAS

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    1. Panos Varangis & Jean Saint-Geours, 2017. "Using Commodities as Collateral for Finance (Commodity-Backed Finance)," World Bank Publications - Reports 28318, The World Bank Group.
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    Cited by:

    1. Hintz, Kendisha Soekardjo & Pretzsch, Jürgen, 2023. "Smallholder perceptions of and willingness to participate in Forest Farmers' Organizations: Insights from case studies in Ethiopia and Tanzania," Forest Policy and Economics, Elsevier, vol. 149(C).
    2. Bas Louman & Erica Di Girolami & Seth Shames & Luis Gomes Primo & Vincent Gitz & Sara J. Scherr & Alexandre Meybeck & Michael Brady, 2022. "Access to Landscape Finance for Small-Scale Producers and Local Communities: A Literature Review," Land, MDPI, vol. 11(9), pages 1-26, August.
    3. Starfinger, Marcel & Tham, La Thi & Tegegne, Yitagesu Tekle, 2023. "Tree collateral – A finance blind spot for small-scale forestry? A realist synthesis review," Forest Policy and Economics, Elsevier, vol. 147(C).
    4. Carias, Dora & Page, Tony & Smith, Hilary & Race, Digby & Keenan, Rodney J. & Palmer, Graeme & Baynes, Jack, 2022. "Beyond the ‘Field of Dreams’ model in smallholder forestry: Building viable timber value chains for smallholder tree growers in developing countries," Land Use Policy, Elsevier, vol. 120(C).

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