An innovative livelihood project uses teak as collateral in Laos

By Claire Fram, Research Fellow, Livelihoods and Markets

November, Bokeo, Laos: Last month, members of RECOFTC’s team and representatives from the Ministry for Foreign Affairs of Finland traveled to Bokeo, Lao PDR to follow up on site development for the ForInfo project. The three-year project, funded by the Ministry of Foreign Affairs of Finland, aims to empower forest-dependent communities and small holders in Cambodia, Lao PDR, Thailand, and Vietnam through holistic development of information networks at the community level.

The project takes the well-known premise that knowledge is power and turns it into a tool for poverty reduction. Helping local people learn how to generate quality information about their forest resources makes them better equipped to access markets for their products and services. Ultimately, improving rural people’s ability to generate and use information about forest resources can contribute not just to poverty reduction but also to the sustainability of forests, and global efforts to mitigate climate change by helping communities adapt.
 
Improving livelihoods in community forestry faces myriad challenges. Building communities’ understanding of and involvement in forest management and forest product value chains offers an innovative path forward.

The team met with representatives of bamboo harvesting communities to discuss ways to access the bamboo value chain

In Bokeo, Laos, the ForInfo project sites represent a diversity of forest-based industries. In each case, forest-dependent communities stand to improve their livelihoods through the development of information networks and, ultimately, meaningful market engagement.

The ForInfo project helps local people develop viable livelihood opportunities, such as this smallholder tea plantation in Bokeo, Laos

At one site, ForInfo is supporting the development of an innovative new micro-credit scheme that hinges on the use of standing trees as loan collateral. This concept stands in contrast to the more common practice of using communities’ own land use rights to secure loans.

As the situation exists now, farmers in financial emergencies may decide to sell some of their trees for fast cash. They are likely to sell their largest trees, even if they are premature—only 12-15 years old—as standing trees to middlemen who skim most of the profit. In this case, the share in value addition for the farmer is rather low—typically below 15%. The problem of losing value from mismanaged harvesting is a national concern for Lao PDR.

Once in place, the microcredit scheme will enable communities to apply for loans to bolster their micro- and small-enterprises at an interest rate of 12-15%, meanwhile letting the trees mature to 25-30 years—a period during which the annual value increment of teak is on the order of 20-25%.

RECOFTC’s Bernhard Mohns and Wacharee Kanyamasa, along with Ms. Helena Ahola, Counsellor and Head of Development Co-operation, Embassy of Finland in Bangkok and
Ms. Sanna Pulkkinen, Program Officer for Vietnam and Mekong Unit for Asia and Oceania, Ministry for Foreign Affairs of Finland, met with a micro-finance firm and The Forest Trust (TFT) teak consultants on their visit to the site. The team successfully identified three villages in teak-forests that are appropriate for piloting this new collateral scheme.

Ms. Helena Ahola (left) and Ms. Sanna Pulkkinen (center) look on during a site visit with a Lao partner.

Bernhard participated in an on-site training for Lao PDR government representatives in assessing plantation management practices. This training represents a concrete step towards making teak-collateral loans a reality for smallholder teak-forest communities. The government representatives who attended the training will be the link between small-share teak-farmers and banks: they will issue and administer the teak-collateral certificates.

Providing an alternative option for farmers to access capital, and removing incentives to harvest young trees, may be one part of the solution towards Lao PDR communities reclaiming their share of the value chain.

Click here for more information on the ForInfo project.

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