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Lack of financial inputs and access to microfinance services is often a problem for local producers of forest products. This publication contributes to the 2005 International Year of Microcredit by focusing on finance issues for forest-based small-scale enterprises, as part of the forest sector's strategy towards meeting the Millennium Development Goals on reducing poverty and hunger.

This publication examines microfinance needs and constraints of small-scale enterprises. It analyses the different types of microfinance institutions, the role that they can play in the forest sector given the characteristics of small enterprises and forest communities, and their impact on local livelihoods and environment.

Little documentation is available on the specific subject of microfinance in relation to small-scale enterprises and forest communities. A purely "forest microfinance" approach based on microfinance institutions exclusively dedicated to financing small-scale enterprises in the forest sector is unlikely to be sustainable in itself. In any case, the income of many forest-dwelling households derives from a wide range of activities, not only forest-based. How to establish and support the provision of microfinance services on a viable basis is a key issue for the sustainable development of small-scale enterprises. This publication presents some examples of successes, aiming to provide a basis for orienting decisions when trying to expand the outreach of microfinance institutions in forest communities. It is mainly based on a literature review, studies and documents of international development organizations, documented project experiences, FAO's internal knowledge and experience, inputs from international financing institutions other relevant agencies and knowledge centres and four case studies from three different continents.

It is hoped that this book will be a useful reference point and inspiration for national and international institutions involved in designing policies and projects for the development of forestry communities, such as donors, government institutions and programme/project managers. It should also be of interest to institutions providing financial services to small enterprises in rural areas.

R. Michael Martin, Director
Forestry Policy
and Information Division
FAO Forestry Department        

Wulf Killmann, Director
Forest Products
and Economics Division
FAO Forestry Department

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