Abstract
Many countries have seen a rising demand for forest policy reform. This paper explores the effects of China’s forestland mortgage policy, a supporting measure for collective forest tenure reform, on household credit access. In theory, the forestland mortgage policy could have three impacts on households: (1) forestland possession could change households’ willingness to access credit (2) forestland possession could enhance household access to credit, and (3) the contract structure follows the theoretical predictions of the credit contract design mechanism. Our results show that households’ willingness to enroll in the mortgage policy as well as their potential to obtain credit increased when households possessed larger areas of forestland. However, the proportion of households that successfully obtained credit were fairly modest. Meanwhile, we found a positive relationship between collateralized forestland and the amount of the forestland mortgage loan, and a negative relationship between collateralized forestland and the interest rate. These findings are consistent with the theoretical predictions of the contract mechanism design. The existing forestland mortgage policy has increased households’ credit access to some extent; however, there is much room for improvement from a policy perspective. This requires divising policy arrangements that would facilitate a fully developed credit market available to households. Forest tenure mortgage loans alone may not be able to fully meet households’ financial needs.
Highlights
China’s Collective Forest Tenure Reform (CFTR) has redefined the forestry sector by clearly defining property rights and allocating forestland to rural households (Managi et al, 2019)
In the two equations above, ri refers to the interest rate stated in the signed contract, yi refers to the loan amount, Li refers to the mortgaged forestland area, and Zi refers to a group of control variables. ε3,i and ε4,i refer to the independent and the distributed disturbance terms, respectively
Looking at the participation equation, which reflects households’ willingness to participate in the credit market, we can find that the area of forestland owned by households has a significantly positive impact on their willingness to apply for a loan
Summary
China’s Collective Forest Tenure Reform (CFTR) has redefined the forestry sector by clearly defining property rights and allocating forestland to rural households (Managi et al, 2019). Considering that collective forest management has low production efficiency and makes low contribution to household income, in 2008, the central government implemented CFTR nationwide. This policy grants long-term property rights over collectively-owned forests to rural households (Yin et al, 2013). The FMP enables rural households to use their forestland as collateral to apply for credit from formal financial institutions Such economic value comes from household property rights over forest resources associated with forestland (China Banking Regulatory Commission, State Forestry Administration, 2013). Through the implementation of FMP, the central government mandates that formal financial institutions issue mortgage loans, the qualified rural credit cooperatives. The final section discusses the main results of this paper and provides a conclusion
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