Author: Sikor, T
Households require access to external finance to establish and manage commercial tree plantations. The Government of Vietnam has recognised the benefits of giving households access to external finance for planting trees. State reforestation programmes and the state-owned banking system offer households exceptional access to financial support. Reforestation programmes and state-owned banks currently use different kinds of financial mechanisms to provide finance to households. The financial mechanisms perform differently with regards to their sustainability, leakage, access, cost to households, risk to households and match with finance requirements. No mechanism performs better than the other mechanisms on all criteria. Vietnam’s policymakers thus face critical trade-offs when they design finance programmes in support of household tree plantations. The first trade-off is between financial sustainability and the provision of accessible, affordable and low-risk support. A mechanism that provides easily accessible support at low cost and low risk entails transaction costs that make the programme dependant on continuing subsidies. The second trade-off is between leakage and financial sustainability. A mechanism that includes systematic monitoring for avoiding leakage incurs transaction costs that reduce its sustainability. The interests of Vietnam’s tree-planting households and the Government of Vietnam may be best served by a loan-based approach coupled with suitable monitoring of loan use.