Roundtable on Forests as sustainable and secure sources of energy & fossil fuel substitutes
The fourth and final roundtable discussion for the Indian School of Business (ISB) – Bharti Institute of Public Policy’s (BIPP) Initiative on the Forest Economy (IoFE) was held on 24th November 2022. The Roundtable discussion was centered on the topic of “Forests as sustainable and secure sources of Energy & Fossil Fuel Substitutes.” The concept of forest economy opportunity for people, planet, and profits, was deliberated upon by participants from various organizations, including the National Bank for Agriculture and Rural Development (NABARD), Kotak Mahindra Bank, HDFC Bank, Samunnati, UC Inclusive Credit, ESAF Bank, Microsave Consulting, Intellecap, Ashok Methil Vishwanathan, and Neha Mudaliar.
About the Event
During the discussion, Professor Ashwini Chhatre, Executive Director of BIPP, shared an outline of the forest economy model, which focuses on increasing returns to scale and enables large-scale distributed industrialization, wealth, and equity while ensuring sustainable management of forest landscapes. He highlighted the triple-win opportunity that the forest economy holds, benefiting the industry from secure and competitive sources of raw materials and traceable supply chains, the forest-dependent communities from transformed livelihoods, and forests from sustainable management and conservation. Prof. Chhatre also discussed the three pillars that would make the triple-win forest economy model possible, including (a) security of tenure of the forest-dependent communities for the right ownership incentive, (b) economies of scale – formal and aggregated community-owned enterprises, and (c) market linkages of scale between industry and community-owned enterprises for industrial raw material.
Forest Economy Model
Prof. Ashwini identified two challenges in operationalizing this vision: technology and financing the forest economy. The discussion revolved around how to finance the initiative, which had the potential for enormous growth, like microfinance at its initial stages. It was suggested that the focus should be on how to fund the capex at the aggregated level, ensure working capital, and provide financial assistance to people dependent on the forest economy who do not have access to credit. He emphasized the need to create a mechanism for demand-based technology supply where communities will demand and how to use existing mechanisms for financing the forest economy. He also highlighted the enormous potential of this initiative, not just for poverty reduction but also for biodiversity conservation, climate mitigation, ecosystem services, and other intangible benefits to society.
Problem Statement
Ms. Neha focused on financing the initiative and compared it to microfinance in its initial stages. She identified three financial needs: funding the capex at the aggregated level, providing working capital to ensure timely remuneration to forest workers, and providing financial assistance to people dependent on the forest economy who do not have access to credit. By partnering at an enterprise level, credit products and services can be provided, and a credit history can be created for this vast market. Neha highlighted the potential of formalizing the forest economy, given its vast resource of wealth and knowledge and the number of people dependent on it.
The focus of the discussion was on three questions: Where do the participants see the opportunity, do they see a large enough opportunity, and what are the three tangible steps that can be taken ?
Mr. TVS Rao, from ITDA, pointed out that the major challenge they faced was Aadhaar, banking, and connectivity. Lack of connectivity led to the challenge of marketing. ITDA was willing to come and guarantee the banks but only through NGOs.
Ms. Sushma suggested that if two villages have the security of tenure, they have the ownership and management rights of the forest resources, and then they organize themselves into a community enterprise and handshake with the private sector. So, the industry is buying raw materials sourced from the forests, sourced by the communities but through the enterprise. Communities will get the ownership incentive, and sustainability is ensured. She also pointed out that one fundamental reason for marketing efforts to flounder could be that the approach is always towards making finished products, unlike what we set out to do, which is to sell the raw materials directly to big industries that will convert these materials into products.
Reji Daniel from ESAF emphasized that public policy must be translated into private policies. ESAF started as an NGO in Grameen Bank and ventured into microfinance. They wanted to call themselves a social bank, and many of their cooperative members were located on the periphery of the forest.
Mr. Ashok Methil, a retired CGM from NABARD, shared his association with tribal development and the livelihoods of the tribal districts from the forests. He highlighted some of the financial institutions that are eligible for credit guarantee fund of up to 2 crores in NABARD, including commodities like honey, bamboo, hirda, sal, tussar silk, and mahua flowers. However, one of the main challenges is the lack of creditworthiness of people whom they want to finance. One of the solutions is controlling the net collectives and collecting the self-approvals and FPOs. The people dependent on forests are out of the radar, so there is no proof of their creditworthiness, so he is unsure how to deal with this challenge. The marketing of the products collected from the forest is a major challenge because they lack an organized mechanism for marketing. NABARD does not give loans to individuals, only grants if they find value.
Mr. Jayesh Bhatia highlighted two factors – the national system and the perspective around the ecological function. He pointed out that the challenge is how to balance commercial and ecological security. He discussed the two funds of Avishkar: the ESG fund, which supports small and immediate businesses, and the Carbon trust fund, which is scheduled to start soon and will help plant- and forest-based food businesses. The emphasis is on the need for policies to be translated into materialized solutions.
From the standpoint of the banking sector, the Kotak Bank spokesperson emphasized the need for policy support and institutional strength. Regarding the success of the Forest Economic Initiative, he cited Proof of concept and a combination of financial backing based on commercial bank standards as important elements. Technology, raw material supply deadlines, contract deliveries, and a credit guarantee facility are crucial to the model’s success, according to his opinion.
Perspective from Stakeholders
The discussion concluded with the need to find sustainable solutions to finance the forest economy, including creating demand-based technology supply and providing financial assistance to people who are dependent on the forest economy but do not have access to credit. The participants discussed the vast potential of forests as a resource of wealth and knowledge, highlighting the fact that 97% of human existence has survived through forests. They acknowledged that the people who are dependent on forests have been marginalized to the fringes, and an initiative like this has a massive scale, potential, and high impact in formalizing the forest economy.
The group identified and discussed the use of current financial instruments and institutions to meet the demand for and requirements of finance in enabling the forest economy. They also discussed important aspects that will need to be ensured for the viability of a forest economy. The ISB-BIPP team shared the design of the forest economy eco-system that incorporates all these key aspects, thereby lending itself to an inherently strong, equitable, and sustainable model.
In conclusion, the participants identified financing as the main challenge in formalizing the forest economy. The lack of connectivity, creditworthiness of people, and an organized mechanism for marketing were also identified as major challenges. The need to balance commercial and ecological security was also highlighted. The participation from multiple categories of financial institutions and organizations led to identifying pathways for different kinds of financing in the forest economy, including working capital and capital for capacity and infrastructure at the community-owned enterprises and project finance to private companies, community-owned enterprises or independent entrepreneurs towards the large business opportunities in the forest-based industry value chains. The roundtable was a valuable milestone for ISB’s initiative in formalizing the forest economy.
Steps have enormous potential for growth and impact on poverty reduction, biodiversity conservation, climate mitigation, ecosystem services, and other intangible benefits to society.