Vietnamese villagers now hold 50-year use rights on more than a million hectares of forest – more than 40% of the country’s tree plantations. Luther Bailey/flickr.

BOGOR, Indonesia (27 February, 2013)_Rural people are playing a key role in reforesting Vietnam, using small, low-interest loans for household plantations that both supply the pulp and paper industry and act as personal savings accounts: When in need of fast cash, they can always cut down a few trees, says a new report by the Center for International Forestry Research (CIFOR).

Thomas Sikor, lead author of the report, says the scheme has helped turn this Southeast Asian nation into a model for other tropical countries seeking to slow forest loss and land degradation.

“The strategy is working,” he said, adding that Vietnam has now transferred a quarter of its forestland to households.

“Next to land rights, finance is one of the main factors that really allows so many smallholders to become involved. This has many more direct livelihood effects than pouring finance into large state-owned companies.”

Vietnam was once blanketed by plush, natural forest, with 14.3 million hectares accounting for 43 percent of land cover in 1945, according to the U.N. Food and Agriculture Organization. But by 2000, decades of war (including bombing and the dumping of defoliants by U.S. Forces), agricultural expansion and logging saw that number slashed in half.

An aggressive regeneration campaign has helped turn things around.

In many regions of the developing world, plantations are established by state entities, private companies and transnational corporations, Sikor notes.

But Vietnam has, in the last 20 years, been transferring forestland to individual households. Thanks to land reforms, they now hold 50-year use rights on more than a million hectares of forest – more than 40% of the country’s tree plantations, Sikor said in Financing Household Tree Plantations in Vietnam.

That’s actually double the area managed by the once-dominant state owned forest companies.

“This is what is so interesting about Vietnam,” he said.

While Vietnam’s plantations largely supply the pulp and paper industry, they can have important future uses in the country’s burgeoning for-export furniture industry, Sikor notes.

Next to land rights, finance is one of the main factors that really allows so many smallholders to become involved…this has many more direct livelihood effects than pouring finance into large state-owned companies.

Trade initiatives like the new reforms coming into place in the Lacey Act in the U.S., and the EU’s FLEG-T Voluntary Partnership Agreement should help ensure tables, chairs and other wood-based commodities from the country can be sourced from sustainable, ethically traded timber.

“The goal is to keep the trade clean,” explains Sikor.

The spread of smallholder tree plantations is partially thanks to the fact that the state-owned banking system, which gives rural households widespread access to financial support. According to an analysis carried out by the Institute for Banking Strategy in 2008, 70% of all rural households in Vietnam receive credit, accounting for fully 25% of the country’s economic lending.

The government wishes to continue expanding reforestation through smallholders, as part of the Production Forest Development Policy, implemented in 2007, which wants to see 250,000 hectares a year established until 2015. The kinds of finance that are made available will largely determine the extent to which smallholders can play a key role in this strategy.

But not all forms of financial assistance are created equal, which is why Sikor examined five forms of credit that are available to rural Vietnamese, including the World Bank, the Kreditanstalt fur Wiederaufbau, and the Vietnam Bank for Agriculture and Rural Development.

According to his analysis, none of the financial options are perfect, but any policy that policymakers seeks to promote should have four key elements: a loan-based approach, require that commercial interest rates are charged, and require loan recipients to form small groups, as well as operate through the Bank for Social Policies.

All these recommendations, says Sikor, will minimise the need for external assistance and grants (which are increasingly difficult to acquire) and curtails leakage of finance to other activities.

The recommendations he has are not only applicable to Vietnam, says Sikor.

“The central message of our paper is that microfinance can be very helpful for supporting reforestation,” says Sikor.

“You just need to figure out the role assumed by tree plantations in the household economy and then offer a suitable portfolio of financial products.”

This work is part of the CGIAR Research Program on Forests, Trees and Agroforestry and was supported by Gesellschaft für Internationale Zusammenarbeit (GIZ).