Tree collateral – A finance blind spot for small-scale forestry? A realist synthesis review

Marcel Starfinger, La Thi Tham and Yitagesu Tekle Tegegne

Forest Policy and Economics, 2023, vol. 147, issue C

Abstract: Small-scale forestry requires an integrated environmental rural-development approach. However, individual small-scale forest producers face various constraints, especially regarding finances, as long rotation periods clash with the more immediate financial needs. The “tree-for-loan collateral approach” offers a potential remedy for this financial dilemma wherein trees—or tree-derived products or services—serve as part of the security necessary for loans or other transactions in both formal and informal contexts. This approach can ease access to finance for land users that lack conventional collateral, but it requires innovative lending and valuation procedures. Despite the initial and ongoing dissemination of tree collateral, deliberations in academia and practice are diverse, and relevant knowledge remains largely fragmented. This conceptual and terminological diversity further underlines the necessity of global synthesis and analysis. We conducted a realist synthesis review of literature databases and organizational websites; we also sought guidance through key informant interviews to assess the context, mechanisms, and outcomes of tree collaterals described in the literature. The analyzed mechanisms range from informal or customary approaches to the formal approaches offered by development or commercial banks. Key factors that hinder up-scaling can be overcome through the social aggregation of producers, access to processing and established market outlets, and clear regulations for forest asset collateralization. The typology classification of the reviewed mechanisms reveals a plethora of innovative intricacies and creditor-debtor constellations, including NGOs and other third parties that secure the transactions. Future economic research on tree collateral should address key parameters and assess the impact and potential conceptual optimization of easing access to finance. We also recommend further research beyond economics to examine the social implications and effects of the tree collateral mechanism as a potential tool for facilitating access to forest resources worldwide, including the financial and technical means for access.

Keywords: Loan security; NTFPs; Mortgage; Asset collateral; Access to finance; Microfinance (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:forpol:v:147:y:2023:i:c:s138993412200199x

DOI: 10.1016/j.forpol.2022.102886

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