Financing smallholder timber planting in Indonesia: mismatches between loan scheme attributes and smallholder borrowing characteristics

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Over the past decade, many tropical country governments have promoted smallholder timber planting. In Indonesia, the government introduced a program aimed at establishing 5.4 million hectares of smallholder timber plantations by 2016. In order to support the program, the Government of Indonesia provides access to funding through a microcredit loan scheme. However, to date there has been insufficient awareness and interest from smallholder planters. Research conducted in Riau and South Kalimantan provinces found that smallholder borrowers were more likely to borrow from traditional and informal sources than from the government programme. Using a gap analysis, this study identifies a number of fundamental problems caused by mismatches between the loan scheme and the characteristics of borrowers. They include a minimum loan size that is too large for small farmers to manage, an overly burdensome application and reporting process, a lack of loan management at the local level, and improper geographic targeting of the loan programme, among others. Based on these findings, this paper provides a number of recommendations to improve the government loan scheme by adapting it to the needs of its target beneficiaries.

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