Related policies on reform of collective forest rights system and financial assistance on forestry development have been established by the People’s Bank of China, Ministry of Finance People’s Republic of China, China Banking Regulatory Commission, China Insurance Regulatory Commission and State Forestry Administration. According to these policies, financial organizations would contribute to provide financial assistance, improve the forestry credit management and actively support the reform of collective forest rights system. However, since the implementation of this reform is still at the preliminary stage, most of the woodlands have been leased by individual forest farmers, and the operating cost of the contracted loans by financial organizations is relatively high, further improvements  with risk compensatory mechanism and credit guarantee system on forestry loan should be made.
I. Overview of forestry credit loan service in Beihai City
In the past two years, financial organizations in Beihai city have improved and strengthened the integrated financial service on forest to insure a steady operating of forestry credit loan. Including, improvements on forestry credit loan management, strengthening on risk management.
1. Great support on forestry loan requirements, loan was highly increased
In 2009, the financial organizations in Beihai city have highly supported the credit loan on forestry department; the forest loan amount has been highly increased above the average level. By the end of November 2009, balance of forestry loan provided by financial organizations in Beihai city was RMB153.92 million, up 89.28% from RMB 72.6 million in the previous year. The increasing speed was 51.2% up compared with the credit loan in the city. New forestry credit loans have been increased by 93.09% compared with the beginning of this year, to RMB74.25 million, and 56.92% higher than the whole increasing speed of new loans in this city.
2.Strengthen the guarantee, good quality of forest loan.
Since the forestry loan risk is relatively high, without the forest insurance products, financial organizations in Beihai city have strictly strengthened the management of each forestry loan cases, including highly strengthening of the credit of the borrowers and loan guarantee. Take the Agriculture Bank of China in Beihai city for example, it requires a co-guarantee with 4 forestry farmers for small forestry loans. And all financial organizations require the mortgage guarantee with the forestry industries. By the end of November 2009, the Non-performing loan ratio is 0.03%, with a RMB 50,000 subprime loan.
3. Differential treatment, Tailor-made loans.
To further improve the forestry financial service, the Rural Credit Cooperatives in Hepu County took the advantages of closing to the forestry market, and developed different loans according to forestry plantation, forest products processing and forest products distribution and others, including, credit guarantee, security guaranty, pledge guaranty and mortgage guarantee, ect,. It goes as following: i) mortgage loan for those who has land, plant and equipment and other assets; ii) pledge loan for those who has wood, plywood and other wood products; iii) small loans and co-guarantee loans for those with small plantation areas but good credit forestry farmers; iv) mortgage loans with mortgage of forestry ownership and woodland use rights for those with large plantation areas. The variety of loans of Hepu Rural Credit Cooperatives has effectively supported the development of forestry
II.Current problems in forestry credit service
1. The risk compensation mechanism of forestry credit is not sound; some financial organizations are still under a hesitant situation.
There is a big natural disaster risks for forestry plantation, also the timber processing and products distribution have much account receivables. Thus, there is a great risk of bad debts. Generally, forestry industry is a risky business. Although the national policy called the financial organizations to support the reform of collective forest rights system and forestry development, but a sound credit risk compensation mechanism has not been established yet. Also there is no such a forestry related insurance. It results in some financial organizations hesitate with forestry credit loans. Currently, only four financial organizations has been involved into this issue in Beihai city, 50% less than the total financial organizations in the city.

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