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  • Linking smallholders to existing wood value chains for sustainable supply

Linking smallholders to existing wood value chains for sustainable supply

An aerial view of a river catchment area in Sondu Basin, Kenya. Photo by P. Sheperd/CIFOR
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Continuing a series of interviews on inclusive landscape finance, Tevis Howard, founding director of Komaza, shares his insights with Bas Louman of Tropenbos International.

Tevis Howard of Komaza. Photo by Komaza

Komaza, founded in 2006, is a vertically integrated forestry company that is involved in forest production from tree nurseries, tree cultivation, harvesting and processing, to selling to domestic and international customers. The company is based in Kifili, Kenya.

Different from other forestry companies in Africa, which produce timber in large plantations, its production is based on thousands of small woodlots in partnership with as many smallholder farmers.

This fits into the production model in Kenya well, where more than 50 percent of the wood supply comes from such farmers.

By aggregating the wood production of these small farmers, Komaza has been able to link them to the traditional wood value chain.

Tevis Howard gives us some insights into the challenges and opportunities he faced in seeking finance during the 13 years since the foundation of the company.

What does ‘inclusiveness’ mean to you?

Inclusiveness seems to be more of an academic issue and can mean many things, at all segments of the value chain, from production to consumption. What counts is that products are useful and accessible to everybody, whether they be financial products, material inputs for tree production or the final products of the wood value chain. Partnerships should be mutually beneficial and include people in transactions or agreements because it is valuable to do so, and not just because it is politically correct.

In our case, partnering with smallholders is a clear business strategy which allows us to reach scale while reducing risks and costs. At the same time, farmers have low risk, significantly increase their assets, and have an expectation of additional future income. Our experience is that partnerships as a whole have created greater benefits for all than could have otherwise been achieved.

Read also: Moving towards a more integrated view on finance and impact

What are the structural barriers to financing smallholders and small- and medium-sized enterprises (SMEs)?

I think you need to address this question at two different levels: first there is Komaza itself, which started up as an SME, although it has now grown to a full-sized company. Secondly, you need to look at the smallholders who grow the trees.

For Komaza there were four big challenges: the first three, to attract the right staff, choose the right farmers to work with and find the buyers, were straightforward challenges that most businesses have. Staff need to be motivated, farmers need to be willing to plant and maintain the plantations, and the customers need to be willing to buy at the offered quality-price relation.

Komaza organizes farmer training programs to ensure quality planting and tree management. Photo by Komaza

Finding the finance to support operations, however, was another matter. The biggest challenge we had was to find investors that were prepared to take the risk to invest in our operations. This went beyond developing the right business models. It required investors to be familiar with the region and interested in investing in early stages of the business. Then we had to convince them that it was worth investing in this asset class, that we were able to manage the risks, and that our model had reduced costs in comparison to traditional tree plantation models.

At the level of the smallholders, the main barriers to becoming involved in tree planting relate to adequate knowledge on tree planting as a business, the costs and availability of inputs for tree plantations, and the requirements for obtaining loans.

How have you addressed these barriers, and what have you learnt from this?

Initially, we aimed at obtaining grant money from social enterprises seeking impact. Using this to build up our model, we were able to obtain convertible loans and equity investments, blending development with commercial money. Financiers invested in Komaza, helping it to grow its assets in trees and a range of different SME processing facilities.

Komaza farmers. Photo by Komaza

After 11 years of building the enterprise, we now have a company with thousands of partners, together worth more than 20 million USD and with expertise across the forest value chain. Much of the work was through personal contacts, establishing trust between Komaza and the potential financiers and between Komaza and partners throughout the forest value chain. In addition, we developed a people-centered company, which helps motivate both farmers and staff to work together in a cost-effective manner while at the same time operating within a corporate structure that is credible to investors.

With respect to the barriers of the farmers, we have been able to come to agreements where they provide land and labor, and we provide technical assistance – the required inputs for tree farming. This helps us to keep costs down (in conventional plantations labor costs may be more than half of total costs) while they invest in the plantation without getting into debt, converting their labor into assets (trees). Once trees have reached the appropriate size, we harvest, transport and sell the trees, sharing the benefits of the sales with the farmers.

Subsistence farmers may find it difficult to obtain documentation that they own their land or other assets, which they would need, for example, to obtain commercial loans. In order to become a partner of our company, we require that their ownership is recognized by neighbors, chiefs and community leaders. This has the added advantage of lowering the risk of land right conflicts.

Finally, we make sure that the area planted with trees is in addition to the area needed for subsistence farming, to ensure that their food provision is not endangered by the wood production. In some cases, farmers also produce food in between the trees during the first years of the plantation.

Read also: Financial products should be adjusted to better meet needs of community forest enterprises

What suggestions do you have to scale up this type of inclusive business model?

We have been able to scale up due to a number of factors: a realistic corporate structure; a human-centered approach, where we discuss with farmers their problems and how our partnership could address some of these; building motivated expertise across the forest value chain; and building relations of trust with farmers, staff, processors, buyers and financiers. This has taken more than 10 years. We have now come to a stage where, with the help of grants, and later blended finance, we have shown the business case and have attracted commercial equity and debt investments in our firm.

Eucalyptus and Melia farms. Photo by Komaza

Only the private sector can invest sufficient amounts in order to reach the scale necessary to create a wood supply from sustainable sources that is able to meet demand. For that reason, we are in the process of creating our Smallholder Forestry Vehicle. Through this vehicle we hope to contribute to filling the gap between financiers that want to invest in sustainable projects but cannot find viable proposals, and the farmers that want to change to more sustainable forms of production but cannot find the finance.

For replication of this type of investment in other areas, we suggest that rather than starting from scratch, it will be important to seek partners that already have the experience, have a network of trustworthy relations, and are motivated to work with trees in the area.

One of the major issues in the forestry sector in Africa is unsustainable production. Scaling up sustainable wood production may not be feasible if at the same time national governments do not take measures to reduce wood from unsustainable sources. One way of doing this would be to raise taxes on wood from unsustainable sources.

By Bas Louman, Tropenbos International.

This interview has also been published on the Tropenbos International website.


This article was produced by Tropenbos International (TBI) and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.

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  • FTA Digital Summit on Inclusive Finance hosted by the GLF

FTA Digital Summit on Inclusive Finance hosted by the GLF

Men process palm oil fruit in Cameroon. Photo by M.Edliadi/CIFOR
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A woman in Fatumnasi, Indonesia holding a harvest of cassava. Photo by A. Sanjaya/CIFOR

Within the framework of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), Tropenbos International and the Center for International Forestry Research (CIFOR) have initiated a project on inclusive finance. This project includes eight interviews with key stakeholders involved in forest and tree product finance in developing countries and a summary of existing documentation on the topic.

This process, or learning journey, now enters into a consultative, interactive phase. During this phase, we invite you to share your thoughts on finance for inclusive and sustainable landscapes with experts on the topic.

Join us on 9 July 2019, 14:00 Central European Summer Time (CEST), for a Digital Summit on Inclusive Finance organized by FTA and hosted by the Global Landscapes Forum (GLF).

Pauline Nantongo of Ecotrust in Uganda, Juan Carlos Gonzalez Aybar of Althelia Funds and an impact investment manager from Mirova, and Marco Boscolo, forestry officer in the policy, governance and economics group of the Food and Agriculture Organization of the United Nations (FAO) will discuss their experiences and thoughts on the way forward for the upscaling of innovative finance mechanisms that support sustainable landscapes and consider the smallholders within these landscapes.

REGISTER FOR THE DIGITAL SUMMIT HERE.

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  • Moving towards a more integrated view on finance and impact

Moving towards a more integrated view on finance and impact

A Lubuk Beringin villager taps a rubber tree on her farm in Jambi province, Indonesia. Photo by T. Saputro/CIFOR
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Marthe Tollenaar. Photo by New Forests.

In the penultimate interview of this initial series, we hear from Marthe Tollenaar and MaryKate Bullen of New Forests, an Australia-based fund management company with more than A$5 billion invested in sustainable leading-edge forestry, land management, and conservation projects in the Asia-Pacific region and the United States.

Marthe is responsible for the environmental and social management of investments in Southeast Asia and for supporting compliance with International Finance Corporation (IFC) Performance Standards and Forest Stewardship Council (FSC) certification.

MaryKate Bullen. Photo by New Forests.

MaryKate leads corporate communications and media relations, as well as strategic planning and implementation of corporate sustainability and responsible investment initiatives. They share many decades of experience on how to make investments more inclusive.

This interview complements our previous interviews held with non-governmental organizations (the International Institute for Environment and Development and the Finance Alliance for Sustainable Trade), intergovernmental bodies (the United Nations Forum on Forests), a community organization (the Association of Forest Communities of the Peten), a development bank (the Netherlands Development Finance Company) and another investment company (FORM International), thereby enriching the discussion on inclusive finance.

How do you define ‘inclusiveness’ and why should it be addressed by financial institutions?

At New Forests, we consider inclusiveness to mean the generation of value for all stakeholders in our business, including investors and communities, and the environment. We believe that an inclusive approach ensures steadier and more long-term profitability, and creates opportunities through shared value business strategies.

Rubber trees grow in rows in South Sumatra, Indonesia. Photo by I. Cooke Vieira/CIFOR

We also feel that demonstrating successful business models that incorporate environmental and social benefits are essential for transitioning the forest and land use sectors to long-term sustainable models that promote equity and inclusion.

New Forests ensure that our investments use appropriate best practice in stakeholder engagement, guaranteeing inclusiveness with respect to gender, indigenous peoples, and other potentially vulnerable groups.

As global demand for resources grows, there is a need to increase productivity while ensuring the conservation of the world’s remaining natural forests and sustaining the needs of local communities. The Sustainable Landscape Investment (SLI) framework has six core themes that we apply throughout our investment portfolio, which is designed to balance these interests and deliver enhanced investment performance in support of our corporate purpose.

New Forests’ Sustainability Working Group developed a series of quantifiable measures to track our performance against each of the six themes defined in the SLI framework, and both the Shared Prosperity and Land Use themes measure the inclusiveness of our investments.

We are continuing to build on this and look to deepen the benefits that inclusiveness can bring, continuing to focus on key areas including gender, shared values, and the social license to operate (for example ensuring that Free, Prior, Informed Consent (FPIC) or similar procedures have been implemented by investees).

Read also: More dialogue needed between farmers, forest enterprises and finance providers

What are the structural barriers to financing smallholders and small- and medium-sized enterprises (SMEs)?

There are several options for New Forests to invest in smallholder forestry: The first is direct investment in smallholder-managed forestry assets through a cooperative or other organizational structure. The second is through outgrower schemes that enhance scale and production by integrating contract farmers in the business model, enhancing scale and production of our investments. A third is with forestry and agroforestry programmes, though the signing of agreements with communities for mixed cropping models either inside or outside the forest area under our management.

Structural barriers differ in each of these different investment options. Smallholder-managed forestry assets, even when they are united through a cooperative or other form of association, often lack the scale required to make an attractive business case for direct investments.

A Hevea plantation in Ngazi, DRC. Photo by A. Fassio/CIFOR

Good governance is key to meeting our strict performance and compliance requirements, but is often challenging in smallholder forestry. Organizational structures are also often lacking or poorly managed, with a high risk of internal disputes, and low smallholder commitment reduces the quality of production.

New Forests requires certification of our investments as part of our Social and Environmental Management System. The challenges described above and complex supply chains mean that there are considerable barriers to group certification, increasing reputational risk for the investor. Another challenge in the forestry sector is the long investment horizon. Smallholders are often looking for quick returns and lack the resources to make long-term investments.

Expected returns in forestry may also not be high enough for the farmers to compete with alternative crops like oil palm or annual food crops. Land tenure and land governance issues can also be barriers to investing in smallholders, because investment criteria require certainty over forestry use rights through the duration of the investment.

What are the underlying reasons for these structural barriers?

There is a clear knowledge gap at the local level of production techniques in forestry. Smallholder timber production is typically geared toward the local market, with low-tech processing facilities, and the low quality of timber products often not suited for more commercial and industrial end uses. Smallholders also traditionally lack access to the technical knowledge and expertise in improved silvicultural practices.

There is often a lack of funding for research and development and technical capacity to develop and implement appropriate Standard Operating Procedures. These aspects mean that smallholder forestry is often less productive, less efficient and less profitable than larger-scale models where such resources are available.

Smallholders also face challenges marketing their products. A lack of knowledge on pricing and markets often causes them to sell their products (far) below market-price to middlemen or processing facilities. Long, non-transparent supply chains in smallholder operations increase the marketing complexity, and corruption can contribute to unfair pricing of smallholder products.

Governance of smallholder cooperatives may lack structure and effective oversight and controls, but this may also be complicated by existing disputes or political interference, enhanced by corruption and lack of law enforcement. Communities often lack the knowledge and experience to establish formal bodies, especially with respect to finance, administration and legality.

These barriers can, however, be mitigated to some extent through capacity development, technology transfer, and development of more effective intermediaries and support organizations.

Read also: Financial products should be adjusted to better meet needs of community forest enterprises

How is your organization addressing the needs of smallholders and SMEs for finance, and what have you learnt from that?

New Forests is not focused on investing in SMEs and smallholders directly, but we seek to help our investees – which in Asia are typically medium-sized businesses or subsidiaries of larger conglomerates – identify and understand their impacts on SMEs and smallholders in order to seek where shared value opportunities may exist.

Evening in the forest of Mount Halimun, Salak National Park, West Java, Indonesia. Photo by A. Erlangga/CIFOR

We have developed and implemented various smallholder models in our existing portfolio in Southeast Asia. In our experience, these models play an important role in creating a shared interest in our investments, facilitating shared revenue streams, and providing a social license to operate on the land. New Forests is therefore optimistic that our future investments in the region will continue to include smallholder and SME opportunities.

In addition to these integrated smallholder models, the Tropical Asia Forest Fund (TAFF), managed by New Forests, has in its portfolio companies that invest in local business development, including contract managers, handicrafts, food processing, tailors and farming businesses. Where possible, we link these development opportunities to company needs. In our Indonesian investment for example, we trained local tailors to manufacture uniforms for company staff.

We further incentivize involvement at the local level through community-based monitoring programmes. Communities in and around the forest management units are hired to monitor and patrol the forest close to their village, and receive a bonus for good management, e.g. no fires, no illegal activities, no littering.

Through smallholder models, local business development, employment and other community-based activities, New Forests’ investments promote economic development in the region, and further enhance a shared interest in the company.

What examples do you have of successful or promising financial innovations that contribute to sustainable landscapes?

New Forests has developed an innovative blended finance structure for its latest investment fund for Southeast Asia, with the goal of enhancing investment in sustainable plantation forestry and generating significant positive climate, community, and biodiversity impacts. The fund aims to bring together complementary mainstream and high-impact, development-oriented capital to invest in a diversified portfolio of plantation assets with associated impact activities.

One interesting financial innovation that we came across recently is Fast Track Trade, a platform that connects buyers and sellers through block chain technology, currently being piloted with smallholders in Indonesia.

Read also: Scaling up sustainable forestry projects key to attracting finance

What types of support and conditions are needed to ramp up development and scaling of such innovative finance?

New Forests considers that new commercial models for sustainable forestry are required to meet rising Asian timber demand while also ensuring the sustainable development of emerging markets in ways that are socially and environmentally beneficial. The impact tranche of the second phase of the Tropical Asia Forest Fund (TAFF) is an innovative step to shift capital at scale into high-impact investment models and will seek to demonstrate the case for sustainable forestry businesses in Southeast Asia. Using blended finance, the fund will focus on priority impact activities that are anticipated to support a shift in the overall risk-return profile of investments, while also targeting broader climate, community, and biodiversity benefits.

Through this, we aim to show that more sustainable investment approaches produce an overall benefit for investors, society, and the environment. By demonstrating a scalable, institutional impact investment approach, a second phase of the Tropical Asia Forest Fund (TAFF2) is positioned to be a leader that will shape the market for sustainable forestry in emerging economies. The blended finance structure may also be transferable to other regions and sectors, promoting replicability and scale for impact investment aligned to the Sustainable Development Goals and the Paris Agreement.

We believe a shift is required towards a more integrated view on finance and impact – moving from grant funding into high-impact business models. A key factor in achieving this shift is educating investors in commercial landscape investment opportunities, aligning the interests of commercial and mission-oriented finance.

By Nick Pasiecznik, Tropenbos International.

This interview has also been published on Tropenbos International’s website.


This article was produced by Tropenbos International and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.

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  • Financial products should be adjusted to better meet needs of community forest enterprises

Financial products should be adjusted to better meet needs of community forest enterprises

Workers select Ramón seeds at Melchor de Mencos. Photo by ACOFOP.
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Continuing a series of interviews on inclusive landscape finance, three members of the Association of Forest Communities of the Peten (ACOFOP) share their insights with Bas Louman of Tropenbos International.

Founded in 1997 to strengthen the position and user rights of communities in the Peten Mayan Biosphere Reserve, Guatemala, ACOFOP comprises 24 associated community organizations. Nine of these manage their forests under concessionary contracts covering more than 400,000 hectares.

In 2003, members created a commercial community enterprise (FORESCOM) to provide drying and molding services, technical advice on commercialization and financial services. They now generate USD 5 million annually, some of which is invested in social benefits such as local health and education services.

Some funds are used for reinvestments in protection and control of the forests and prevention and control of forest fires. National Geographic and the New York Times have reported their successes in integrated and sustainable forest management.  

ACOFOP member, Teresita Chinchilla; administrative advisor for member organizations, Elmer Mendez; and Mario Rivas of the productive and commercial area of FORESCOM share their views.

How do you define ‘inclusiveness’ and why should it be addressed by financial institutions?

Mario Rivas of ACOFOP at the plant of Laborantes del Bosque. Photo by D. Stoian

We have not really thought about the topic as such. ACOFOP and FORESCOM work with private banks and receive income from product sales. As access to loans is not easy, we also rely, in part, on international cooperation, for example for technical assistance. For example, the purchase of equipment for use by members was partially financed by international cooperation and after several years these were bought by the organizations.

In addition, it is a challenge to make efficient use of the harvesting season. Despite organizations always paying back loans, the topic of forestry has still not been able to generate enough trust with banks regarding the administrative procedures needed for applying for operational loans, given that they continue to ask for collateral while the organizations work on state land. As such, some of the organizations set aside their own funds for harvesting, or make arrangements with buyers, making payments in the form of timber.

Read also: Scaling up sustainable forestry projects key to attracting finance

What are the structural barriers to financing smallholders and small- and medium-sized enterprises (SMEs)?

First of all, it is difficult to build the trust required to allow loan applications to be processed more rapidly. Another barrier is the need to provide guarantees, especially when most communities do not own the land or property where they harvest the trees and only have concessions over the use of state forests.

Also, loans are usually for one year, and the timing of disbursements and demands for repayments are not adapted to natural harvesting cycles. In general, financial products need to be adjusted to better meet the needs of community forest enterprises, and loan negotiations are made more difficult because credit agents are not aware of the specific needs of forestry businesses.

Workers process wood at the sawmill of Laborantes del Bosque. D. Stoian

Finally, the costs of borrowing are high at 16-24 percent per year, although ACOFOP has been able to negotiate 12 percent in some cases.

Other barriers are related to smallholders’ own experience in running commercial operations. This sometimes creates problems in product delivery and cash flow. Non-timber forest products also face the same barriers, such as with the leaves of the xate palm (Chamaedorea sp.).

Most are sold to US customers with payment upon delivery, causing problems for harvesters especially when payments are delayed. As such, harvesters now demand advance payments from the organization. Others shift towards more opportunistic buyers, selling xate leaves at lower prices but receiving payment more quickly.

How is your organization addressing the financing needs of smallholders and SMEs, and what have you learnt from that?

Members of ACOFOP worked together to solve several structural barriers. In 2004, for example, we founded FORESCOM as a commercial company, contracting qualified personnel for the provision of technical support in forest management, business administration and marketing. Together, we have received international funding which allowed us to invest directly in community enterprises.

More recently, FORESCOM, with the support of ACOFOP, community enterprises and the Agricultural Research and Higher Education Center (CATIE), established a new finance mechanism to provide loans to member organizations at lower interest rates (9 percent) and with greater flexibility regarding the documentation required.

Usefully, loans have a payback period of three years, instead of the usual one year for commercial bank loans. The fund is still small, but we seek to increase it during the coming years. ACOFOP and FORESCOM have also assisted their members in seeking partnerships for financing.

Read also: More dialogue needed between farmers, forest enterprises and finance providers

What examples do you have of successful or promising financial innovations that promote environmentally sound and socially inclusive investments?

We consider ourselves a good example of progress towards sustainable use of natural resources within our landscape, leading to socio-economic benefits for the local population. From our experience, we have learnt that this requires an integrated approach, within which financial innovations are a key component. And these financial innovations have come more from within our local organizations as there has been limited access to private banks and other financial institutions for our members.

We felt the need to create our own fund that allows our members to obtain loans more appropriate to their needs, at lower interest rates, with more flexible repayment periods, and more flexible documentation and guarantee requirements. For example, community management plans and their annual harvesting authorizations form the basis of the loan applications.

Sawn wood, stamped with the FSC logo, is transported by truck. Photo by A. Rodas

A second internal innovation is increasing financial literacy. Community enterprises were supported to formalize themselves as not-for-profit organizations or as for-profit organizations, the main difference between these two being the distribution of benefits.

With both, they decided that 30 percent of net income should be reinvested in forest operations. As a not-for-profit enterprise, the rest is invested in social or productive projects that benefit communities. In the for-profit enterprises, most net income is invested in other projects not necessarily within the community, or is distributed among the community owners of the enterprise.

A third innovation that we are working on is the creation of a fund that can provide advance payments to organizations that trade in palm leaves. The idea is that this fund will grow from a charge on buyers and will be managed by a trust fund and the commercial operations of FORESCOM.

It was felt necessary to create such a fund because payments for palm leaves shipped to buyers are often delayed for months, putting the palm leaf collectors under economic stress. Access to this fund would allow collectors to continue their normal activities, while repayment to FORESCOM is guaranteed once buyers have confirmed the quantity of products received.

Finally, ACOFOP considers it important that community organizations participate in the formation of national financial mechanisms that aim to capture climate finance, to ensure it reaches the communities directly, or through intermediary organizations.

Part of the current problem is that much of this fund stays at the institutional level rather than being used for actions on the ground that benefit local people. ACOFOP is working on this at the moment, but so far it has only had limited responses from governmental institutions. We consider that national mechanisms need to be more open to inputs from community-based organizations.

Read more about ACOFOP operations here.

By Bas Louman, Tropenbos International.

This interview has also been published on the Tropenbos International website.


This article was produced by Tropenbos International (TBI) and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.

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  • Scaling up sustainable forestry projects key to attracting finance

Scaling up sustainable forestry projects key to attracting finance

An aerial view of Burkina Faso, Africa. Photo by D. Tiveau/CIFOR
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Paul Hol assesses the age of a teak tree in a plantation in Ghana.
©Form International

Continuing this new interview series on inclusive landscape finance, we hear from the corporate sector.

Paul Hol, CEO of FORM International, shares his views with Tropenbos International’s Nick Pasiecznik on what is already being achieved and, more importantly, what still needs to be done to attract more investment for reforestation of degraded forest landscapes.

FORM International is a forest management and services company that manages forest assets in Africa and delivers a range of management and financial services. It is coinvestor in the investment company Sustainable Forestry Investments (SFI).

 “The main issues are the lack of projects and the problem of scale,” states Paul. “There is also a need for stakeholder involvement, but financial sustainability and a sound business case are paramount to success.”

How are you involved in sustainable forest landscapes?

FORM International has supported sustainable forest management for more than 25 years, assisting Sustainable Forestry Investment (SFI) to attract more than USD 60 million of investment, directly benefiting more than 2,400 employees. Founded in 1992, FORM International has provided innovative services to support the implementation of best practices. In 2007, we focused our operations through the establishment of FORM Ghana Ltd.

The transformation of a degraded forest area in the Tain II Forest Reserve, Ghana, between 2014 and 2018. ©FORM International

This FSC certified plantation company integrates large-scale reforestation of degraded forest land with the needs of local villagers and the environment, while not compromising economic viability. Today, FORM Ghana manages some 18,000 hectares in close collaboration with smallholders and communities. Following successes here, SFI Tanzania Ltd. was set up in 2013 and now sustainably manages timber and sisal production on 10,000 hectares of formerly degraded forest in the Tanga region.

The transformation of a degraded forest area in the Tain II Forest Reserve, Ghana, between 2014 and 2018. ©FORM International

 

In parallel, FORM International partnered with SFI in 2009. SFI is an investment company based in the Netherlands. While FORM International implements projects, SFI attracts institutional and impact investors who share FORM’s belief in sustainable reforestation and who want to make a real contribution on a large scale.

It is aiming to secure investments of about USD 150 million by 2022, and wants to increase the area of reforested land to 40,000 hectares. This commitment was made during COP 21 in Paris in 2015, in partnership with the African Forest Landscape Restoration Initiative (AFR100), which is an initiative of the World Resources Institute and the New Partnership for Africa’s Development, a program of the African Union.

Read also: Forest finance partnerships more productive than competition

You have invested in sustainable forestry, but why have so few other organizations followed suit?

There is plenty of money, but there are too few ‘good’ projects! And it not just the lack of project ideas, but also the problem of bringing good projects to scale. The Netherlands Platform for Microfinance (NPM), for example, has significant capital to invest, but they, and similar institutions, cannot finance just a handful of farmers. To ensure impact at a large scale, we need vehicles or mechanisms that are effective and adaptable.

A very simple way to develop project ideas would be to gather a group of experts together, and send them around the world to identify good land-use practices that can be translated into bankable projects and would benefit communities and the environment.

However, there are two prerequisites. First is the essential need to listen to people, lots of different people, to understand their land-use interests. Second is the need to develop a ‘technical concept’ that works for one hectare, but that can also be scaled up. Importantly, a structure is needed to handle the finance aspects in a uniform way – and this requires organizing farmers into formal groups or associations.

What must not be forgotten is the overriding element for success, which is financial sustainability. At the moment, we are making efforts towards environmental restoration in a rather chaotic and haphazard way. Some organizations focus on protecting a single species or ecosystem, for example, others focus on a single commodity, while what we obviously need is something much broader than that.

Specifically, how is your organization addressing inclusive finance, and what are your experiences and key lessons?

We have the knowledge – look how we made this work in Europe. We started with the ‘technical concept’, mapping soil and climate types, and linked this to inputs and financial returns. Governments were strongly involved. But we didn’t consider long-term impacts.

Teak afforestation in Akumadan, Ghana – putting forests back where they once were.
©FORM International

We do include sustainability in our technical concepts, though we are still only at the early stages of analyzing, testing and determining the best ways forward. Once we do find the right answer, doors will open to accessing more finance, and convincing other stakeholders to participate

As a plantation company, we and others like us are in a key position to offer ‘good’ projects to investors, and to scale them up, i.e. to overcome the main obstacles in offering finance for reforestation. But how do we define ‘good’?

By using transparent and globally agreed standards. FORM International’s plantations are certified according to the Forest Stewardship Council’s Ten Principles for Sustainable Forest Management, or to other certification standards with similar sustainability principles.

Read also: Strengthening producer organizations is key to making finance inclusive and effective

What examples do you have of successful or promising ‘model’ approaches or innovations?

We feel that the three specific pillars of our unique investment concept offer one possible model. First, establish a good relationship with traditional landowners, farmers and local communities to ensure that plantation development will be beneficial for all, leading to a stable and long-term situation. Second, respect strict ecological and environmental standards. And third, develop plantations in a way that will allow us to meet target returns on investment.

We also need to continue to set realistic goals – and to build momentum to ensure that we meet them. For example, I led the organization of ‘Forests for the Future: New Forests for Africa’ in Accra, Ghana, in March 2016, to discuss the implementation of reforestation goals in the AFR100.

What is your vision on how best to increase finance and investment in sustainable forestry?

We must understand local needs and concerns. If landscape restoration is to succeed, it needs stakeholder involvement in a way that is financially attractive and sustainable. This means ‘inclusive finance’. This is a term that is now being used to describe what we have been doing for some time regarding reforestation of degraded lands. What makes it different from other forms of finance is that it includes local people, right from the start.

I also believe in voluntary and spontaneous development. It cannot be forced – but it can be helped. Consultant advisors, for example, will fail if they try to implement a one-size-fits-all system to build bridges between smallholders and investors.

But they can support a better positioning of farmers, organizations and companies, and build the capacities of smallholders and their organizations as a basis for what might follow organically.

I strongly believe that people can help to build such important relationships, but only in the region they work in and know, culturally, socially and economically. They can then assist in formulating and putting into place adapted, tailor-made approaches, developed from hands-on experience. Importantly, this must involve the expansion of links with local governments.

Government support for, and cooperation in this kind of project is essential, but private sector involvement is crucial to drive success, attract much-needed investments and achieve the third component of sustainability, i.e. increase the financial independence and improve the financial position of all stakeholders involved.

Forest and landscape restoration is one of the answers to climate change, but in most cases it will not be the main motivation for participants, and is likely to be different for each land user. To make such projects successful, we need each other, and every single partner – company, authority or farmer – to see the added value of participation.

By Nick Pasiecznik, Tropenbos International.

This interview has also been published on the Tropenbos International website.


This article was produced by Tropenbos International and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund. 

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  • More dialogue needed between farmers, forest enterprises and finance providers

More dialogue needed between farmers, forest enterprises and finance providers

A market in the village of Minwoho, Lekié, Center Region, Cameroon. Photo by O. Girard/CIFOR
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FTA communications

As part of this new interview series on inclusive landscape finance, Tropenbos International’s Nick Pasiecznik spoke to Noemi Perez, an inclusive finance and investment specialist, with extensive experience with key issues gained from work in both the private and public sectors.

Noemi began her career sourcing timber for one of the largest door manufacturers in the world, Puertas Montealban, rising to general manager.

After seeing how the corporate sector could support and promote sustainable finance for small-scale forest enterprises, she applied her experience to roles in the World Wildlife Fund (WWF) in Costa Rica and the Forest Stewardship Council (FSC) in Mexico.

She then cofounded the international, non-profit Finance Alliance for Sustainable Trade (FAST) in Montreal, Canada, in 2008, where she worked until April 2018. At FAST, she worked mainly with public funds seeking to match small- and medium-sized forest enterprises (SMEs) to private investors. Noemi is currently a freelance consultant.

Read also: Strengthening producer organizations is key to making finance inclusive and effective

What are the underlying reasons for underfinancing of small-scale agricultural and forest businesses?

The most basic problem is lack of literacy – not only financial literacy, but also basic literacy. How can we expect farmers or rural entrepreneurs to be able to access finance if many can’t even read or count? Even among those that can, there is a lack of understanding of business fundamentals, when what is needed is business acumen, as a prerequisite for good decision making, including finance.

Thus, there is a serious and urgent need for basic education and business education. For example, in 2010, at an investment conference I attended, rural SMEs were invited to present their cases, but it was clear that some were not even differentiating between sales and profit.

Another constraint is that farmers often sell perishable agricultural produce, and do not have facilities to store goods while waiting for a better price. This makes them even more vulnerable: they have to sell at any price, or they run the risk of losing everything. The lack of strong producer organizations makes it very hard for individual smallholders to be bankable.

On the other hand, financial service providers are not willing to take risks in sectors where they have not previously invested. They may not have sufficient knowledge or information on how to manage risk in rural small-scale agricultural and forest business settings.

Even institutions that claim to invest in forestry or agriculture, often say things like “we invest in agriculture, but we don’t invest in that country”, or “we don’t invest in that sector” without even looking at the specific business cases.

What are we not doing right, or not doing well enough, or not doing at all?

Where are the farmers? We need to inform financial service providers and bring them together with farmers. I have been to more than a hundred meetings and conferences on agriculture, forestry investment and similar initiatives, and there is hardly ever a farmer present, or not more than a single token representative. This is not right. We need to create situations where farmers can sit down and tell financial service providers face to face what it is that they need.

At the same time, the financial sector needs to explain their own needs and constraints clearly to farmers. Then they can sit down together and discuss how to manage the risks.

Financial institutions need to understand small-scale agricultural and forest business needs. Adapting and creating specific products and services based on their needs is key, particularly medium- and long-term access to finance.

They also need to know how value chains work, be in contact with different links in the chain, understand market requirements and make strategic alliances. They need to better understand smallholder production cycles, needs, products and markets, and that it is usual and acceptable to rely on local markets and not only on export markets.

On the other hand, farmers must understand the requirements of financial institutions, their restrictions, and that they need certainty that they will get their money back, to satisfy their own investors. Financial institutions must also make clear to farmers why they charge X or Y percent interest, and where this money goes, as often, rural, agricultural SMEs do not even understand why interest is charged!

In addition, one important thing we can do is to look more closely at successful small-scale agricultural and forest businesses in developed countries – how do they work and what makes them successful, what subsidies exist and what types of finance do they have access to?

In developed countries, many small-scale agricultural and forest businesses make a decent income. Even though they have their own struggles, they live well. It would be useful to compare similar types and sizes of smallholder enterprises in developed and developing countries, how they are organized and how they operate.

Read also: Catalyzing partnerships for reforestation of degraded land

What examples do you have of successful or promising ‘model’ approaches or innovations?

Good examples of inclusive finance tend to occur where the true realities of farmers are well understood, such as the impacts of seasonality of production, for example. These success stories have almost always resulted from situations where farmers and financial institutions have sat together and talked and rural, agriculture smallholders have repaid. There are excellent examples from banks that have specialized in agriculture, such as the Netherland’s Rabobank, or France’s Credit Agricole. There are also socially oriented lenders such as Alterfin, the Commodities Fund of Kenya, Pear Capital,  Root Capital, Oikocredit,  ResponsAbility, Triodos Investment Management, Bankaool, and Shared Interest.

What is your vision on how to increase finance and investment in sustainable forestry and farming?

My vision is that every individual should have the right to access financial resources to improve their livelihood if they can demonstrate they have a viable business and produced positive social and environmental impacts. But how? First, we must promote greater dialogue between small-scale enterprises and financial service providers, as I have explained.

This also highlights and connects to those small-scale agricultural and forest businesses that already have a secure market and long-term relationships that could immediately back up a loan. Next, we need to better understand current markets and take these into account – and not any potential future (e.g. export) markets that might take 5–10 years to materialize.

Finally, we need to provide similar conditions for small-scale agricultural and forest businesses in developing countries as are offered to those in developed countries, including the needed levels of education from basic financial literacy to business acumen.

By Nick Pasiecznik, Tropenbos International.

This interview has also been published on Tropenbos International’s website.

Please note that the photos used here are for illustrative purposes and do not refer directly to FAST activities.


This article was produced by Tropenbos International and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.

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  • A guide to investing in collectively held resources

A guide to investing in collectively held resources

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FTA COMMUNICATIONS TEAM

Impact investors typically finance businesses that seek to challenge the status quo, valuing environmental and social outcomes to deliver more sustainable returns on investment. Microfinance institutions such as Grameen and FINCA lead the way in financing poor and marginalized groups. Now, however, increasing attention is being given to help investors respect land rights and form equitable partnerships with communities living in rural areas. Communities are increasingly being given rights to manage the world¹s remaining common pool resources (CPR) – such as forests, pastures and fisheries – as common property. As such, investors interested in accessing and developing these resources have the opportunity to work with a new investment partner, the community user group (CUG). This guide is designed to help investors better understand the challenges and opportunities of investing in resources managed collectively by a community – where the community is the principal investment partner! In this guide we draw on examples and lessons learned from four case-study countries considered to have the most successful arrangements for collectively managing natural resources. The case countries are Guatemala, Mexico and Nepal, which have devolved forest rights to communities, and Namibia, which has devolved wildlife rights.

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  • Strengthening producer organizations is key to making finance inclusive and effective

Strengthening producer organizations is key to making finance inclusive and effective

Biofuel plantations in the Miombo woodlands, Zambia. Photo by J. Walker/CIFOR
Posted by

FTA COMMUNICATIONS TEAM

Duncan Macqueen. ©Macqueen/IIED

As part of the “Innovative finance for sustainable landscapes” interview series, the International Institute for Environment and Development’s (IIED) Forest Team Leader Duncan Macqueen spoke with Tropenbos International’s Nick Pasiecznik on increasing finance and investment in sustainable forestry and farming for smallholders.

“The challenge is to build strong producer organizations and change the perceptions of risk, return and transaction costs,” Macqueen said. This highlights direct support for strengthening membership, management and business as a strategy to develop bankable businesses with investment returns that are attractive to potential financiers. This will, in turn, improve livelihoods and provide an incentive for sustainable forest management.

Among Macqueen’s most recent publications is Access to finance for forest and farm producer organisations (FFPOs).

How do you define ‘inclusive finance’ and why is it important?

Inclusive finance ensures that local forest and farm producers are collectively involved in generating incomes, saving and making investments that improve their livelihoods. Importantly, it is not primarily about individuals, but about producer organizations that include women, landless people and ethnic minorities.

In developing countries, microfinance is rarely at a scale that can lift people out of poverty. Microfinance does, however, help to build individual capacities to understand and manage larger finance. To be transformative for forests and livelihoods, producers must be organized. Producer organizations are essential. They increase the economic scale and technological efficiency of transactions, and the credibility with which investments to upgrade transactions can be managed.

International finance rarely reaches forest and farm producers because financial institutions perceive the risk-to-return ratios and transaction costs to be too high. The challenge is to build strong producer organizations and change the perceptions of all involved.

A training course for women enterprise groups in Belize: “something we should be doing more of”. ©Macqueen/IIED

What are the underlying reasons for the underfinancing of locally controlled agricultural and forest business?

Underfinancing comes down to a lack of a well-directed ‘enabling investment’, i.e. financial support that does not require a financial return. For small businesses to attract ‘asset investment’ which does require a financial return, enabling investments must secure tenure, develop technical production skills, enhance market access and business know-how, and strengthen producer organizations. Building up these four areas makes such businesses ‘bankable’.

There is also a finance gap between micro-finance and large-scale finance. Microfinance is often available. The sums are small, the periods short, the returns fairly predictable (with a high ratio of working-to-fixed capital), and interest rates can be raised to cover high transaction costs. But microfinance rarely stretches to mid-level investments allowing growth. Large-scale finance is also available, but commercial banks rarely address the small needs of producer organizations because of perceptions on returns, risks and costs.

Read more: Background note on FTA financial innovations for sustainable landscapes interviews

What are we not doing right, or not doing well enough, or not doing at all?

Producer organizations must be strengthened. This includes the leadership, management structure and staff skills required to manage savings transparently. Local producers need to organize safe ways of managing savings. Whether to invest in better technology or to repay loans for investment – saving is the key common need. Once saving patterns are established, producer organizations can build up capital, to invest, use as collateral, or to offer financial services for members.

Better forest business incubation is needed to build financial management capacities within organizations that are inclusive of marginal groups. This is already routine in business incubation, but many for-profit services struggle to cover costs in remote forest landscapes. Unless donors can subsidize such costs, their reach is unlikely to extend beyond urban centers. A more innovative solution is to develop business incubation services within umbrella (or ‘apex-level’) producer organizations to aggregate, process and market products and services from their members.

More financial de-risking is required for external investors. There are five immediate priorities: link producer groups with conventional finance through face-to-face meetings or social media technologies; form partnerships to develop loan appraisals for proposals to banks; find ways of developing collateral acceptable to banks (such as standing tree volume); offer guarantees based on social and environmental commitments to offset perceptions of risk; and help banks redesign financial products to meet producers’ capabilities.

Value chain analysis of elephant foot yam with an association of farmers in northeast Myanmar. ©Macqueen/IIED

How is your organization addressing inclusive finance, and what are your experiences and key lessons?

IIED is shaping more inclusive finance within its entire program. Its Natural Resources Group has helped FAO, IUCN and Agricord design a financing mechanism to support producer organizations through the Forest and Farm Facility (FFF). The first phase included 947 producer groups across 10 countries, with 262 businesses helped to add value or diversify products, and 158 examples of new access to finance.

Direct grants to producer organizations require gender equality and inclusion in membership, leadership and representation. Support includes market analysis and development training, learning exchanges, business fairs and trade shows, links to policy platforms, direct brokering of finance with value chain partners and banks, toolkits for risk management and forest business incubation.

FFF is also now reviewing how to improve access to finance and install forest business incubation capacity into apex-level organizations. We have learnt that direct support for strengthening membership, management and business is highly effective. Bankable businesses emerge with investment returns that are attractive to potential financiers, improving livelihoods and providing an incentive for sustainable forest management. This also creates a pipeline for investible businesses for financiers that will attract future investment. A focus on grants, concessional loans or patient equity for locally controlled forest cooperatives results in inclusive cooperatives, but a focus on debt finance for large corporates leads only to local people being treated as cheap labor.

Read also: Making landscape finance more inclusive

What examples do you have of successful or promising ‘model’ approaches or innovations?

Promising innovations come less from inclusive access to finance, but from inclusive distribution of finance. This is a question of business model design, often found in businesses with democratic decision-making where members who live with the consequences of their business decisions, balance economic, social and environmental trade-offs.

An IIED-led analysis of 50 case studies of democratic business models from 24 countries showed six clear innovations. Democratic oversight bodies governing environmental and cultural stewardship improve the natural environment. Negotiated benefit distribution and financial vigilance mechanisms improve material wealth. Networked links to markets and decision-making improve social connectedness. Processes for conflict resolution and justice improve peace and security. Processes of entrepreneurial training and empowerment for both men and women improve human capacity development. Branding that reinforces local visions of prosperity improves a sense of community purpose.

In Nicaragua for example, FFF-mediated finance for the Mayaring women’s cooperative led to the development of 15 new productss using ‘tuno’ (Castilla tunu) bark cloth for vegetables. This led to a 35 percent rise in household incomes and a forest landscape restoration project using the species.

What is your vision on how best to increase finance and investment in sustainable forestry and farming?

My vision is to tailor different financing approaches to different producer organization types. For example, finance could be directed to indigenous peoples’ organizations in natural forests for territorial delimitation and protection; community forest organizations at the forest edge for making sustainable forest management work in collectively controlled natural forests; forest and farm businesses in planted forest ‘mosaics’ for improved social organization alongside asset investments in production; and peri-urban and urban forest product-processing businesses to increase productivity. Financing could be primarily grant finance to indigenous peoples, grants and blended/concessional finance for community forest enterprises, a mix of leasing, trade chain finance and commercial debt finance and guarantees for producer organizations, and more conventional debt finance for peri-urban groups There is no simple rule – everything depends on the circumstances of the group.

Catalyzing multitiered organizations is part of this vision. This includes first-tier local producer organizations selling products and services; second-tier regional organizations aggregating products, adding value through processing, marketing and providing business incubation services to members; and third-tier national federations lobbying governments for more enabling policies. Evidence suggests that strengthening producer organizations is effective in poverty reduction, and improving governance, forest landscape restoration and delivery of the Sustainable Development Goals.

By Nick Pasiecznik, Tropenbos International.

This interview has also been published on the Tropenbos International website.


Duncan Macqueen is a principal researcher in IIED’s Natural Resources Group. IIED is a “policy and action research organization promoting sustainable development and linking local priorities to global challenges”. His research focuses on the success factors for locally controlled forest enterprises, and he has published widely on the subject. We invited Duncan to express his views on inclusive finance, based on his 25 years of experience of working with smallholder groups and communities to strengthen their capacities to run forest-based businesses and access markets and finance. He and his team have worked closely with FAO and the World Bank, among others. His publications include Prioritising Support for Locally Controlled Forest Enterprises and Financing forest-related enterprises: Lessons from the Forest Investment Program: IIED Briefing.

This article was produced by Tropenbos International and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.

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  • Strengthening producer organizations is key to making finance inclusive and effective

Strengthening producer organizations is key to making finance inclusive and effective

Aerial view of a transition forest area in Bokito, Cameroon. Photo by M. Edliadi/CIFOR
Posted by

FTA COMMUNICATIONS TEAM

Duncan Macqueen. ©Macqueen/IIED

As part of the “Innovative finance for sustainable landscapes” interview series, the International Institute for Environment and Development’s (IIED) Forest Team Leader Duncan Macqueen spoke with Tropenbos International’s Nick Pasiecznik on increasing finance and investment in sustainable forestry and farming for smallholders.

“The challenge is to build strong producer organizations and change the perceptions of risk, return and transaction costs,” Macqueen said. This highlights direct support for strengthening membership, management and business as a strategy to develop bankable businesses with investment returns that are attractive to potential financiers. This will, in turn, improve livelihoods and provide an incentive for sustainable forest management.

Among Macqueen’s most recent publications is Access to finance for forest and farm producer organisations (FFPOs).

How do you define ‘inclusive finance’ and why is it important?

Inclusive finance ensures that local forest and farm producers are collectively involved in generating incomes, saving and making investments that improve their livelihoods. Importantly, it is not primarily about individuals, but about producer organizations that include women, landless people and ethnic minorities.

In developing countries, microfinance is rarely at a scale that can lift people out of poverty. Microfinance does, however, help to build individual capacities to understand and manage larger finance. To be transformative for forests and livelihoods, producers must be organized. Producer organizations are essential. They increase the economic scale and technological efficiency of transactions, and the credibility with which investments to upgrade transactions can be managed.

International finance rarely reaches forest and farm producers because financial institutions perceive the risk-to-return ratios and transaction costs to be too high. The challenge is to build strong producer organizations and change the perceptions of all involved.

A training course for women enterprise groups in Belize: “something we should be doing more of”. ©Macqueen/IIED

What are the underlying reasons for the underfinancing of locally controlled agricultural and forest business?

Underfinancing comes down to a lack of a well-directed ‘enabling investment’, i.e. financial support that does not require a financial return. For small businesses to attract ‘asset investment’ which does require a financial return, enabling investments must secure tenure, develop technical production skills, enhance market access and business know-how, and strengthen producer organizations. Building up these four areas makes such businesses ‘bankable’.

There is also a finance gap between micro-finance and large-scale finance. Microfinance is often available. The sums are small, the periods short, the returns fairly predictable (with a high ratio of working-to-fixed capital), and interest rates can be raised to cover high transaction costs. But microfinance rarely stretches to mid-level investments allowing growth. Large-scale finance is also available, but commercial banks rarely address the small needs of producer organizations because of perceptions on returns, risks and costs.

Read more: Background note on FTA financial innovations for sustainable landscapes interviews

What are we not doing right, or not doing well enough, or not doing at all?

Producer organizations must be strengthened. This includes the leadership, management structure and staff skills required to manage savings transparently. Local producers need to organize safe ways of managing savings. Whether to invest in better technology or to repay loans for investment – saving is the key common need. Once saving patterns are established, producer organizations can build up capital, to invest, use as collateral, or to offer financial services for members.

Better forest business incubation is needed to build financial management capacities within organizations that are inclusive of marginal groups. This is already routine in business incubation, but many for-profit services struggle to cover costs in remote forest landscapes. Unless donors can subsidize such costs, their reach is unlikely to extend beyond urban centers. A more innovative solution is to develop business incubation services within umbrella (or ‘apex-level’) producer organizations to aggregate, process and market products and services from their members.

More financial de-risking is required for external investors. There are five immediate priorities: link producer groups with conventional finance through face-to-face meetings or social media technologies; form partnerships to develop loan appraisals for proposals to banks; find ways of developing collateral acceptable to banks (such as standing tree volume); offer guarantees based on social and environmental commitments to offset perceptions of risk; and help banks redesign financial products to meet producers’ capabilities.

Value chain analysis of elephant foot yam with an association of farmers in northeast Myanmar. ©Macqueen/IIED

How is your organization addressing inclusive finance, and what are your experiences and key lessons?

IIED is shaping more inclusive finance within its entire program. Its Natural Resources Group has helped FAO, IUCN and Agricord design a financing mechanism to support producer organizations through the Forest and Farm Facility (FFF). The first phase included 947 producer groups across 10 countries, with 262 businesses helped to add value or diversify products, and 158 examples of new access to finance.

Direct grants to producer organizations require gender equality and inclusion in membership, leadership and representation. Support includes market analysis and development training, learning exchanges, business fairs and trade shows, links to policy platforms, direct brokering of finance with value chain partners and banks, toolkits for risk management and forest business incubation.

FFF is also now reviewing how to improve access to finance and install forest business incubation capacity into apex-level organizations. We have learnt that direct support for strengthening membership, management and business is highly effective. Bankable businesses emerge with investment returns that are attractive to potential financiers, improving livelihoods and providing an incentive for sustainable forest management. This also creates a pipeline for investible businesses for financiers that will attract future investment. A focus on grants, concessional loans or patient equity for locally controlled forest cooperatives results in inclusive cooperatives, but a focus on debt finance for large corporates leads only to local people being treated as cheap labor.

Read also: Making landscape finance more inclusive

What examples do you have of successful or promising ‘model’ approaches or innovations?

Promising innovations come less from inclusive access to finance, but from inclusive distribution of finance. This is a question of business model design, often found in businesses with democratic decision-making where members who live with the consequences of their business decisions, balance economic, social and environmental trade-offs.

An IIED-led analysis of 50 case studies of democratic business models from 24 countries showed six clear innovations. Democratic oversight bodies governing environmental and cultural stewardship improve the natural environment. Negotiated benefit distribution and financial vigilance mechanisms improve material wealth. Networked links to markets and decision-making improve social connectedness. Processes for conflict resolution and justice improve peace and security. Processes of entrepreneurial training and empowerment for both men and women improve human capacity development. Branding that reinforces local visions of prosperity improves a sense of community purpose.

In Nicaragua for example, FFF-mediated finance for the Mayaring women’s cooperative led to the development of 15 new productss using ‘tuno’ (Castilla tunu) bark cloth for vegetables. This led to a 35 percent rise in household incomes and a forest landscape restoration project using the species.

What is your vision on how best to increase finance and investment in sustainable forestry and farming?

My vision is to tailor different financing approaches to different producer organization types. For example, finance could be directed to indigenous peoples’ organizations in natural forests for territorial delimitation and protection; community forest organizations at the forest edge for making sustainable forest management work in collectively controlled natural forests; forest and farm businesses in planted forest ‘mosaics’ for improved social organization alongside asset investments in production; and peri-urban and urban forest product-processing businesses to increase productivity. Financing could be primarily grant finance to indigenous peoples, grants and blended/concessional finance for community forest enterprises, a mix of leasing, trade chain finance and commercial debt finance and guarantees for producer organizations, and more conventional debt finance for peri-urban groups There is no simple rule – everything depends on the circumstances of the group.

Catalyzing multitiered organizations is part of this vision. This includes first-tier local producer organizations selling products and services; second-tier regional organizations aggregating products, adding value through processing, marketing and providing business incubation services to members; and third-tier national federations lobbying governments for more enabling policies. Evidence suggests that strengthening producer organizations is effective in poverty reduction, and improving governance, forest landscape restoration and delivery of the Sustainable Development Goals.

Read as PDF: Strengthening producer organizations is key to making finance inclusive and effective

By Nick Pasiecznik, Tropenbos International.


Duncan Macqueen is a principal researcher in IIED’s Natural Resources Group. IIED is a “policy and action research organization promoting sustainable development and linking local priorities to global challenges”. His research focuses on the success factors for locally controlled forest enterprises, and he has published widely on the subject. We invited Duncan to express his views on inclusive finance, based on his 25 years of experience of working with smallholder groups and communities to strengthen their capacities to run forest-based businesses and access markets and finance. He and his team have worked closely with FAO and the World Bank, among others. His publications include Prioritising Support for Locally Controlled Forest Enterprises and Financing forest-related enterprises: Lessons from the Forest Investment Program: IIED Briefing.

This article was produced by Tropenbos International and the Center for International Forestry Research (CIFOR) as part of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.

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  • FTA researchers set to highlight seeds, REDD+ and inclusive finance at landscapes forum

FTA researchers set to highlight seeds, REDD+ and inclusive finance at landscapes forum

Posted by

FTA COMMUNICATIONS TEAM

Clouds pass over Ribangkadeng village in West Kalimantan, Indonesia. Photo by Nanang Sujana/CIFOR

The CGIAR Research Program on Forests, Trees and Agroforestry (FTA) and its partner institutions are set to make a strong showing at the Global Landscapes Forum (GLF) Bonn on Dec. 1-2, 2018.

This year’s GLF Bonn will be key in drawing out the next steps toward hitting global sustainability targets, with many participants expected at the World Conference Center in Germany, in addition to a worldwide audience online.

Of numerous discussion forums, FTA is hosting a session on the delivery of quality and diverse planting material as a major constraint for restoration, organized by Bioversity International in collaboration with the World Agroforestry Centre (ICRAF).

FTA Director Vincent Gitz will provide the opening to the session, ahead of a range of speakers including FTA Flagship 1 leader Ramni Jamnadass, as well as FTA’s Christopher Kettle, Marius Ekeu and Lars Graudal, and representatives of numerous key organizations. Additional details are available in the session flyer.

The program is also cohosting a session from the Center for International Forestry Research (CIFOR) titled REDD+ at 10: What we’ve learned and where we go next. Looking back at 10 years of REDD+ research, the session will ask how REDD+ has evolved, and where it stands now.

FTA Flagship 5 leader Christopher Martius, who is also team leader of climate change, energy and low-carbon development at CIFOR, will moderate the session, in which CIFOR’s Anne Larson and Arild Angelsen will speak. The GLF will also see the launch of a related book, Transforming REDD+: Lessons and new directions, in the Landscapes Action Pavilion Networking Area.

Another discussion forum of note is Looking at the past to shape the Landscape Approach of the future, organized by CIFOR, the International Climate Initiative (IKI) and FTA, which will bring together a diverse set of panelists experienced in implementing integrated landscape approaches in various contexts.

A major feature of GLF is its schedule of side events, including Territorial development – managing landscapes for the rural future cohosted by Agricultural Research for Development (CIRAD), and Bamboo for restoration and economic development organized by the International Bamboo and Rattan Organisation (INBAR).

The program will have a presence at the event’s pavilions, including the Inclusive Finance and Business Engagement Pavilion where a highlight session titled Making responsible investments work: Bridging the gap between global investors and local end users is set to take place, looking at success factors for inclusive and responsible businesses, which are at the core of both climate finance and responsible investments, as well as financial mechanisms that can adequately address the needs of such businesses.

Visit the Tropenbos International (TBI) and CIFOR booths to find FTA resources and to speak with FTA experts.


For the full details of FTA’s involvement in GLF, please check the event webpage.

Tune into the GLF livestream on Dec. 1-2, from 9am-7.30pm in Bonn, Germany.


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