Microfinance and Forest-based Small-scale Enterprises

This publication focuses on finance issues for forest-based small-scale enterprises. It:

• Examines microfinance needs and constraints of small-scale enterprises.
• Analyzes:
  • The role that different types of MFIs can play in the forest sector given the characteristics of small enterprises and forest communities;
  • Their impact on local livelihoods and environment.

The paper argues that:

• A purely forest microfinance approach based on MFIs exclusively dedicated to financing small-scale enterprises in the forest sector is unlikely to be sustainable.
• The income of many forest-dwelling households derives from a wide range of activities, not only forest-based.
• A key issue is to establish and support the provision of microfinance services on a viable basis for the sustainable development of small-scale enterprises.

The paper:

• Aims to provide a basis for orienting decisions when trying to expand the outreach of MFIs in forest communities;
• Examines literature reviews, documents of international development organizations, documented project experiences, inputs from international financing institutions and four case studies from three different countries.

It recommends that:

• MFIs develop innovative ways to deliver services and improve capacity;
• Microfinance be delivered by different kinds of formal and semi-formal institutions, non-financial and informal sources;
• Government and donor programs consider the nature of constraints, the existing financial infrastructure and adopt an approach that best suits the local situation.