1. VALUE CHAIN ASSESSMENT FOR SATPARA DEVELOPMENT PROJECT
(SDP)
Report on:
VALUE CHAIN GOVERNANCE AND FINANCE COMPONENT
Mapping and Analysis of Financial Services Provision by Value Chain Actors
By:
Izhar Hunzai
Consultant,
Value Chain Finance
August 15, 2014

2. 2
TABLE OF CONTENTS
1. INTRODUCTION......................................................................................................................................4
1.1 Objectives, Outputs and Scope...............................................................................................4
1.2 Study Approach and Methodology......................................................................................5
2. FROM BARTER TO BANKING .........................................................................................................5
2.1 Evolution of Financial Services in GB................................................................................5
2.2 Birth of the Microfinance Sector...........................................................................................6
2.3 V/WO Banking.................................................................................................................................6
3. FINANCIAL SERVICES EXTERNAL TO VALUE CHAINS...................................................8
3.1 Business Environment................................................................................................................8
3.2 Financial Institutions...................................................................................................................8
3.2.1 Service Provision......................................................................................................................9
3.2.2 Service Quality and Governance......................................................................................10
3.3 Conclusions and Recommendations for Financial Services External to
Value Chains...............................................................................................................................................10
3.3.1 Conclusions:..............................................................................................................................10
3.3.2 Recommendations: ................................................................................................................10
4. FINANCIAL SERVICES INTERNAL TO VALUE CHAINS................................................11
4.1 Summary of Priority Value Chains...................................................................................11
4.2 VC Actors and their Financial Needs...............................................................................12
4.2.1 Dried Apricots..........................................................................................................................12
4.2.2 Tomatoes....................................................................................................................................14
4.2.3 Cherries.......................................................................................................................................15
4.2.4 Green Peas .................................................................................................................................17
5. SUPPORT ACTORS IN VCs..............................................................................................................19
5.1 Overview..........................................................................................................................................19
5.2 Public sector actors...................................................................................................................19
5.3 Community level Actors .........................................................................................................20
6. FINANCIAL GOVERNANACE.........................................................................................................21
6.1 Baseline Situation.......................................................................................................................21
6.2 Strategy for Improving Financial Governance..........................................................22
6.3 Investing in Support Infrastructure................................................................................22
6.4 Democratizing Financial Markets.....................................................................................22
6.5 Financial Products and Services........................................................................................22
7. CONCLUSIONS AND RECOMMENDATIONS........................................................................24
7.1 Conclusion.......................................................................................................................................24
7.2 Recommendations.....................................................................................................................24

3. 3
ACRONYMS
ABC Apricot Business Coalition
AKFED Aga Khan Fund for Economic Development
AKDN Aga Khan Development Network
AKF Aga Khan Foundation
AKRSP Aga Khan Rural Support Programme
BDS Business Development Service
CSO Civil Society Organization
DOA Department of Agriculture
FEGs Field Enterprise Group
FMFB First Micro Finance Bank
GB Gilgit-Baltistan
IFAD International Fund for Agricultural Development
IFC International Finance Corporation
LCUs Local Credit Unions
MARC Mountain Agriculture Research Center
MFIs Microfinance Institutions
NATCO Northern Areas Transportation Company
NGO None Governmental Organization
LSO Local Support Organization
SDP Sadpara Development Project
RMA Rapid Market Appraisal
PCSIR Pakistan Center for Scientific Research
VCs Value Chains
VO Village Organization
WO Women Organization
ZTBL Zari Tarqiyati Bank Limited (agricultural development bank)

4. 4
1. INTRODUCTION
This report on “mapping and analysis of financial services provision by value chain actors,”
is part of an integrated study to identify and assess promising agricultural value chains (VCs)
in the command area of Sadpara Development Project (SDP),under a Technical Assistance
(TA) Contract. The scope of work includes four components: a) VC Mapping, b) Rapid
Market Appraisal, c) VC Finance and, d) Capacity Building Plan for VC team. Reports on the
first two components have been compiled and submitted to the client.
The investigations under component “C” of this consultancy follow the results of the first two
components, which studied severalagricultural value chains and prioritized four most
promising ones in the project area. This part of the study looks at the current financial
services both internal and external to selected agricultural value chains, as well grants and
other support services available from public sector agencies and NGOs. Finally, the report
identifies service gaps and opportunities to improve and upgrade financial and other service
provision in the SDP command area. The report contributes to the third and final round of
deliverables specified in the Terms of Reference (TOR),as following:
Deliverable 3: Final Value Chain Assessment Reports (Reports on each component)
1.1 Objectives, Outputs and Scope
The objective of the financial governance part of the assignment is to undertake an analysis
of the financial environment and interaction between providers and users of financial services
in agriculture in general, and specifically in the four value chains selected in the study.
The main outputs of the study are:
a. An overview of the available financial services and institutions in SDP command area
b. An analysis of service gaps and identification of opportunities for upgrading selected
value chains and various segments
c. A set of recommendations and strategies for improving provision of financial services
to support agricultural value chains in SDP command area.
The scope of this component covers the following key activities.
1. Mapping and analyzing financial services provision by value chain actors and
financial institutions
2. Examining accessibility of financial services and products
3. Examining governance within the value chain(s) to determine if certain actors have
disproportionate power relationships compared with other actors. Are these
relationships mutually beneficial or exploitative?
4. Analyzing value chain actors’ financial acumen and bankability
5. Examining finance policy environment, legal, regulatory, or tax issues that constrain
the flow of finance within value chains.
6. Collecting information on credit currently provided and used by input suppliers,
smallholder farmers,farmer associations, processors (including commercial
farms/estates),aggregators,wholesalers, retailers, and other actors in the value chain
7. Collecting information on volume of credit extended by each supplier, nature and
form of credit by supplier to the sectors (i.e., kind, cash, etc.),credit terms (i.e., term
of the loan, payment mechanisms, allowable grace periods, interest rates,processing
fees,and collateral requirements?
8. Conducting stakeholder meetings to clarify and refine information about
opportunities and gaps, potential approaches, tools, financial products, and services
needed to increase value chain functioning
9. Summarizing conclusions and give recommendations that should include:
a) Strategies, activities and specific steps to be followed to expand credit to selected
value chains,

5. 5
b) Recommending types of financial products and services appropriate for each of
the target value chain participants, the ideal providers of such financial products
and services,
1.2 Study Approach and Methodology
The first task of the assignment was to study and prioritize promising value chains,
(deliverable 1: crop prioritization), for which the consultants visited Skardu between July 3
and 8, 2014, and conducted detailed consultations with project staff and stakeholders. A two-
day workshop was organized to identify and prioritize relevant VCs for the project. On day
one, in-depth consultations were held with SDP management and staff to develop criteria for
selecting and prioritizing relevant VCs. On day two, a wider group of stakeholders was
invited to further refine and validate the selected list of priority VCs. During the same visit,
questionnaires were developed and over the next 4 weeks, data was collected and compiled.
The second task was to conduct a rapid market appraisal (RMA),which entailed detailed
analysis and benchmarking of production, processing, transportation and market opportunity
aspects of the value chains. The process and results of the first two components are contained
in the two reports: deliverables 1&2.
This third component of the holistic assignment takes up the results of the first two
components, i.e., four value chains and RMA, and describes and analyzes the financial
services provision, both internal and external to the value chains, and identifies gaps and
opportunities for improving access to and provision of financial services,with the purpose to
upgrading the selected value chains.
2. FROM BARTER TO BANKING
2.1 Evolution ofFinancial Services in GB
It is often said that three developments have been highly significant in the recent history of
Gilgit-Baltistan. They include, inter alia, a) the abolition of feudal states,b) construction of
the KKH,and c) establishment of AKRSP.
Before the KKH,the area was landlocked, which naturally created a closed economy in which
people strived towards self-sufficiency in food and fiber production, with very few surpluses
being produced and exchanged. Value was ‘stored’ mostly in animals, butter and trees,which
were bartered for other necessities of life. Cash was limited to incomes earned from military
and other non-farm services, as well as wages earned on government contracts. The KKH
essentially ended the isolation of the area and exposed it to larger production and marketing
systems, thus ushering in a new era of development and specialization. However,the impact
of KKH would have been limited had there not been another development that extended its
benefits, beyond immediately accessible areas,to remote corners of GB.
In 1983, AKRSP was established as an experiment in “endogenous and self-sustaining
development” at the grassroots level.1
Three activities provided a foundation for the new
experiment: a) social organization for cooperative management; b) capital generation through
regular savings; and, c) technical skills for increasing productivity.
Going against contemporary best practice in microcredit and development at the time,
AKRSP first focused heavily on savings promotion, introducing credit programs only when a
strong need for loans emerged after market penetration and the adoption of new
technologies.2
Through Village Organizations (VOs) and Women’s Organizations (WOs),
rural farmers were encouraged to first organize, and then save incrementally to build up
1 Village Organization Banking (VOB), AKRSP, 1990
2 Ibid

6. 6
capital. Farmers used their savings to purchase agricultural inputs and for household
emergencies. This was achieved by saving as little as USD 1 cent every two weeks. Initially,
the primary sources of savings was wages under micro infrastructure projects, such as
irrigation channels and link roads, funded by AKRSP,and subsequently included small
portions of remittances and income earned from the sale of agricultural products. V/WOs
acted like informal banking groups. After members deposited their savings in the group, the
elected manager recorded the amount in a group registrar as well as in their individual
passbooks. Collective savings were deposited in a formal bank account, or invested in
government bonds, often earning interest on fixed term deposits. Most groups also initiated
internal lending, enabling villagers to borrow from the group savings at interest rates set by
the V/WO itself.
AKRSP Field Accountants trained village and valley level accountants and regularly checked
financial records and conducted annual audits. V/WO managers and presidents were required
to obtain signed permission from all group members plus an AKRSP resolution to withdraw
savings from the group deposit account. AKRSP staff would often visit groups to verify
withdrawal claims.
By the end of 2000, well over four thousand V/WOs had accumulated an impressive amount
equivalent to USD 8 million in savings, and revolved four times that amount as micro credit.
Almost all of this capital generation and reinvestment had taken place in rural areas and the
impact was felt in both productive and social sectors across the entire region, from Baltistan
to Chiral.
2.2 Birth of the Microfinance Sector
Having developed a functioning rural financial market in the most remote valleys of GB and
Chitral, AKRSP set out to formalize, professionalize and institutionalize the microfinance
sector. In 2000, AKRSP partnered with International Finance Corporation (IFC) and Aga
Khan Fund for Economic Development (AKFED) to incorporate the First Micro Finance
Bank (FMFB) in Pakistan, with branches in all parts of the country. By this time, nine RSPs,
modeled on AKRSP,were operating in all provinces of Pakistan and they were all engaged in
community-based micro credit. In 1996, AKRSP created Pakistan Microfinance Network
(PMN), thus laying the foundation for a vibrant microfinance sector in the country. PMN
presently includes 12 MFIs, and they account for 90% of all microfinance in the country.3
2.3 V/WO Banking
The informal V/WO savings and credit program, nicknamed as village banking (V/Banking),
continued in many areas even after AKRSP withdrew its support and supervision for this
program after establishing FMFB, and continues to this day as a residual activity. The key
advantages of V/WO Banking were its flexibility, lower cost of delivery and social collateral.
On the other hand, the informal nature of the operations required continuous support and
questions of sustainability were being asked.
During the fieldwork for this study, we found VOs and WOs were still engaged in small-scale
savings, as if it had become ingrained as a copping strategy. As summarized in the following
Tables 1 and 2, VOs and WOs in the SDP command area were engaged in small amounts of
savings. Of these,3 VOs and 1 WO were also involved in Village banking.
3 http://www.pmn.org.pk

7. 7
Table 1: VOs Savings in SDP Command area (PKR)
S.No
Name of
VO
# of active
members
Total
Savings
Internal lending
(yes/no)
# of loans given
in 2013
Amount
given
1. Alasar bank 36 30000 N - -
2. Biafu 35 26000 N - -
3. Rizvia 26 27000 N - -
4. Biyorsing 30 8000 N - -
5. Zganthong 21 15000 N - -
6. Pehchan 25 80000 Y 5 35,000
7. Astanabala 25 25000 Y 3 50,000
8. Arif abad 26 75000 N - -
9. Hassan abad 28 70000 Y 4 10,000
10. Hoto ranga 35 70000 N - -
Source: Survey
The V/WO savings and credit model was particularly successfulin two related aspects:a)
female empowerment and, b) education funding. Women, who have long been denied access
to traditional forms of wealth and asset ownership, and access to financial services, have
especially benefited from savings groups.
Table 2: WOs Savings in SDPCommand area (PKR)
S.NoName of WO
# of active
members
Total
savings
Internal lending
(Y/N)
# of loans given in
2013
Amount
given
1. Bain 27 20,000 N - -
2. Biafu 20 15,000 N - -
3. Jaffaria 27 22,000 N - -
4. Braqchan 25 10,000 N - -
5. Dramba 20 15,000 N - -
6. New ranga 25 60,000 N - -
7. Katpana 30 50,000 N - -
8. Ranga yarkhor 30 300,000 N - -
9. Mairaj (wo) 28 35,000 Y 1 25,000
10. Ranga thorkhor 27 380,000 N - -
11 Zrasna thorkhor 40 30,000 N - -
Source: Survey

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3. FINANCIAL SERVICES EXTERNAL TO VALUE CHAINS
3.1 Business Environment
Located at the mouth of the Skardu Valley, the SDP command area,which includes Skardu
Town and its suburbs, is the business hub of Baltistan Division. Skardu is the gateway to
Baltistan. The Gilgit-Skardu road provides road access with KKH to the west,and then
branches out to connect all the other valleys in Baltistan. Skardu town is the administrative
HQ and commercial hub of Baltistan Division. It also has an airport, though commercial
flights are weather-dependent and uncertain. The movement of all goods and people into and
out of Baltistan is through this centrallocation.
A summary typology of financial service available in SDP command area is provided in the
following Table. For greater clarity, these services are divided into the following three
categories.
Table 3: Financial service providers
Financial services
external to value chains
Financial servicesinternal to
Value chains
Support services from
government and NGOs
Formal banks In-kind credit to producers/
suppliers from traders/
processors
Technical training
Credit societies Traders’ credit and pre-
purchase advances to
producers from buyers
Business training
Welfare societies Suppliers’ credit to traders R&D services
Village and Women’s
Organizations
Cooperative marketing and
sharing costs/ benefits
Partial investment grants
Money lenders Self-financing Subsidized inputs
Family members Credit linked to purchase
agreements
Extension services
Buyer’s advance Contract farming Sponsoring value chain
walks
MFIs Consumer credit to farmers
from shopkeepers
Support infrastructure, such
as farm to market roads and
subsidized electricity
3.2 Financial Institutions
Skardu town is home to regional offices and branches of all commercial and development and
microfinance institutions and commercial banks, as well as other financial institutions that
operate in Baltistan. In addition, private finance is also available from a host of informal
sources,such as welfare societies and VOs and VOs.

9. 9
Table 4 below shows the number and type of banks and other financial institutions located in
the SDP command area.
Table 4: Type of Financial Institutions/ branches in Gilgit Baltistan
Banks/ Institutions Number
Commercial Banks 14
Development Banks 2
Post Offices (as FIs) 3
Micro Finance 2
Cooperative Societies 16
Village Organizations 64
Women's Organizations 35
Total 115
Source: Monitoring, Evaluation and Research (MER)Section, AKRSP.
3.2.1 Service Provision
The formal banking sector includes 14 commercial banks, two development banks, and two
micro finance institutions, the FMFB main branch and one of its retail units, located in
Skardu town. However,the survey findings show none of the commercial banks issued any
loans in support of the agricultural development. This is consistent with historical trends in
which commercial banks in GB have been taking deposits and ‘exporting’ capital to their
head offices for investments in large industries in the mainland. Commercial banks typically
offer consumption loans to salaried people. Because of this neglect, local branches of
mainland banks are not permitted to develop financial products for local markets.
Table 5: Agricultural credit given by formal banks in the command Area in 2013 (PKR)
#
Name of
Bank # of loans
Amount
disbursed
Start up
capital
Working
capital
Average
interest rate Remarks
1. ZBTL 200 35,000,000 15,000,000 20,000,000 14.50% Political
2. FMFB 146 3,000,000 - 3,000,000 23% High Iterest
3. MFU 912 9,291,212 4,000,000 5,291,212 19% High interest
4. Akhuwat 500 10,000,000 10,000,000 - 0% Interest free
Source: Survey
The survey results show that ZBTL (Agricultural Bank) disbursed PKR 35 million; the largest
amount disbursed and gave credit for both start-up investment and working capital. The
average loan size was PKR 175,000. ZTBL is providing loaning facilities to all areas related
to the agriculture in the area under two main heads, i) Agriculture Development loans: these
are long term loans for the purchase of machinery and other components; and ii) Agriculture
production loans: these are small loans offered to the farmers for purchase of inputs, such as
seed,fertilizers and pesticides.
The FMFB disbursed PKR 3 million, the average loan amount being about PKR 20,000, and
it only financed working capital. The financing provided by microfinance Unit (MFU) is
significant both in terms of quantum and number of beneficiaries.
The most unusual source of financing is Akhuwat, a welfare society funded through
‘community donations’ that offers small amounts to poor households and women to set up
micro home based enterprises in the farm sector. Overall, the data shows that the public sector
is still the main source of agricultural finance, while Akhuwat is the largest provider of
finance for poor families and women.

10. 10
The business model of Akhuwat follows principles of Islamic finance, which takes the form
of a business partnership between the provider of finance (financial equity) and provider of
labor (sweat equity).
3.2.2 Service Quality and Governance
From the survey results, it is clear that the only investment products available for agriculture
are from the public sector,microfinance and non-profit welfare sectors. While useful, these
services are no substitute for commercially available credit, which is key to spurring private
sector-led growth. A typical problem in public sector supplied investment capital is that it
typically goes to more influential borrowers, who may not even be entrepreneurs. More often
than not, these loans are written off.
Similarly, microfinance, and welfare provided credit is often too little and too late. While
filling a key service gap, it has little potential for scaling up and sustainability, in its present
form. However,because of its flexibility, low delivery cost, and social collateral, the
community backed informal finance can be upgraded and formalized into Local Credit
Unions (LCUs).
3.3 Conclusions and Recommendations for Financial Services External to Value Chains
3.3.1 Conclusions:
a) SDP command area is the commercial hub of Baltistan and ideally located for
developing business clusters around: a) production inputs, b) product amalgamation,
c) processing and value addition and, d) trade and transportation.
b) Developing promising agricultural value chains in the command area can have
positive spillover effects for the whole of Baltistan region.
c) Relative to other parts of Baltistan, the command area has good access to financial
services, but much of this is public sector/ supply driven not market driven
d) Because of lack of participation of commercial banks in the agricultural sector,
products and services are limited,
3.3.2 Recommendations:
a) Partnering with private banks will be the best strategy to improve local capital market
functioning
b) Investment by commercial banks in agricultural value chains (current benchmark
being close to zero, according to the results of this study) can be incentivized by
either topping up their margins, or reducing their risk through guarantees
c) Let the commercial banks do their own due diligence and risk assessment,as well as
use their own capital, but the project can ‘reward’ them for lending to agricultural
sector
d) For goodwill and participation of poor and women, providing a grant to Akhuwat to
be used as a revolving credit fund without interest rate,is another recommendation.

11. 11
4. FINANCIAL SERVICES INTERNAL TO VALUE CHAINS
4.1 Summary of Priority Value Chains
Under component 1 and 2, four value chains have been prioritized. These are:
 Apricots
 Tomatoes
 Fresh cherries, and
 Green Peas
The comparative analysis and prioritization summarized in the following Table represents a
well-diversified portfolio of crops, and provides a reasonable balance between agro-ecology,
economy and social benefits. The values assigned to different crops are not weighted.Still,
the comparisons are useful because they reflect the experience of technical staff and the
perceived benefits of value chain actors. Moreover,the scores under each category of benefits
helps in making informed decisions for value chain actors. For instance, dried apricots rank
highest in the priority list from an overall perspective, but green peas and cherries come ahead
of apricots from market demand perspective, and all crops except apricots rank higher from
future market potential. The risks and rewards become known under this classification, and if
someone wants to take a little extra risk to get an extra return, the classification makes that
decision easier.
Table6:ComparativeAnalysisandPrioritizationofVCs for SDP Commandarea
CRITERIA USED
Dried
Apricot
Tomato
(seedling)
Fresh
Cherries
GreenPeas
AGRO-ECOLOGY
a) Adapted to the agro-climatic conditions H M M M
b) Land-use advantage H H M M
c) Off season advantage M H H H
d) Soil fertility M M M H
ECONOMIC RATIONALE
a) Market demand M M H H
b) Relative income per unit of land M H H H
c) Processing/value addition advantage H M L L
c) Storage and transportation advantage H M L M
d) High volumes available for marketing H L L L
e) Market potential underfuture improved cross-bordertrading conditions M H H H
f) Employment generation H M M L
g) Food Security (defined as self-provisioning) H M L L
h) Prior experience with production and marketing H L M M
SOCIAL BENEFITS
a) Equity/wider benefits H L L L
b) Women involvement H M M M
c) Youth involvement M L H H
d) Involvement of poorhouseholds H L L L
Source: Adapted from the components1&2
Overall, dried apricots come at the top with the H score of 11; next are green peas with an H
score of 6, followed by fresh cherries 5 H scores. Early tomatoes for local market get a score
of 4 H and 8 M.

12. 12
Table 7: Relative Scores
Score Dried apricots Tomato Seedlings Fresh Cherries Green Peas
H (High) 11 4 5 6
M (Medium) 6 8 6 6
L (Low) 0 5 6 5
4.2 VC Actors and their Financial Needs
In this section, key financing needs and issues along the value chain map are summarized for
all the four value chains selected for this study. The information provided here is based on
survey results and opportunities and gaps identified by the stakeholders, as well as analysis of
potential approaches,innovations, financial products, and services needed to increase value
chain functioning.
4.2.1 Dried Apricots
Annual production of apricots in GB is estimated at 114,286 ton. Baltistan region alone has
an annual production of 40,649 tons or 35.6%. Owing to their perishable nature and distance
location of down country consumption markets, apricots are mostly dried and sold to generate
cash income. Apricot kernel oil, used in cosmetic industry, is another high-priced by-product.
Apricots fit neatly into local farming systems, food security and labor allocation strategies
used by subsistence-oriented farmers, and in the agro-ecological logic of mountain areas.
Historically, early maturing varieties provided high value nutrition to landlocked local
populace during famine-like conditions in early summer, when the previous year’s stored
food was already exhausted, and harvest of main food crops was weeks away. There are more
than 60 varieties, which may represent one of the oldest and well-preserved genetic stocks of
apricot cultivars in the world. Of these only two or three varieties are currently believed to
have a commercial potential.
Apricot trees do not compete with staple crops for scarce land and water resources,as they
are largely grown on marginal slops, not in terraces,and are allotted junior irrigation rights
after cereals. Traditional apricot cultivation practices provided multiple benefits, at little input
and management cost. This helps in understanding why farmers today may be reluctant to
adopt new, management-intensive commercial varieties, growing and managing trees
scientifically in proper orchards, or reducing the number of varieties. These are serious
questions and must be placed in their proper context, in devising strategies for further
development of apricot value chain.
Major Flow
Medium Flow
Limited Flow
As described in the RMA report, and summarized in the above VC map, the supply chain of
dried apricot is active and quite dynamic. Almost all farmers in the command area grow small
Production Processing Wholesale Marketing
Local
Collector
Individual
Growers
Rep. of
wholesaler
Rep of
Processor
Wholesaler
Processor Processors
Outlet
Dry fruits
Shops
Domestic
International
Local
Retailing
Figure1: VC Map of Apricots

13. 13
quantities of apricots, which are of mixed varieties. Small quantities of commercial varieties
are then pooled to generate marketable volumes. FEGs and representatives of wholesalers
and processors do most of the collection for processing. Processing involves two stages:
drying at the farm and FEG level and cleaning, grading and packaging at the secondary
processing level. Local agents of wholesalers and representatives of processors collect the
primary product from the individual farmers and FEGs for a pre-agreed price, according to
the quality of the produce. They also provide inputs, such as drying trays, plastic for drying
tents and sulfur whose cost is deducted from the sale of their produce. The produce is then
reprocessed (washing, grading and packing) under the supervision of technical hands and
supplied to the retailers, national wholesalers and exporters.
The following chart summarizes key stages in apricot VC, market actors and their issues and
financing needs.
Chart 1: Apricots:VC Actors and their Financial Needs
VC STEP VC ACTOR FINANCING NEEDS AND ISSUES
Cultivation of
certified plants of
market-demanded
varieties
Grafting of new
varieties on
traditional ones
 Private nursery
 Public nursery
 Service providers
 Farmers need access to certified and market demanded
varieties
 Public sector (DOA) is expected to provide this service,
but it does not have the resources
 Private commercial nurseries require sizeable initial
investment
 Financial institutions are reluctant to finance nurseries,
which are perceived as ‘public goods’ and government
responsibility
Primary production
of mix varieties
 Farmer
 FEGs
 Very small quantities of market-demanded varieties at the
individual farm level
 FEGs work as informal cooperatives to pool their product
 Financing at the primary production level is not a major
issue
Collection & primary
processing (drying)
 FEGs
 Representativeof
processor
 Representativeof
processing
 Financing is needed for transportation, trays, plastic, labor
 At present some R&D money is available under the SDP
for training and demonstration purposes
 For scaling up, specific financial products are needed from
MFIs and commercial banks, which are not available
 Advance payments fromsecondary processors are also
available but not always guaranteed
Secondary processing
(cleaning, grading
and packaging)
 Wholesaler
 Processor
 Financing needed for plant, equipment, warehousing,
transport and working capital
 Limited asset-based financing available from ZBTL
 Commercial banks not willing or equipped to appraise
investment proposals
 Non-financial business development services (BDS)
missing
Trading  Processor’s retail
outlets
 National
wholesaler
 Working capital needed for retail shop owners
 National wholesale markets are notoriously complex, and
monopolistic
Marketing
 Exporter
 Importer
 Letter of Credit is a must for direct export, according
government policy
 But importer wants to first inspect the goods before
making payment

14. 14
Summary of findings and recommendations for Apricot VC
Almost all actors in the value chain are in the informal sector, which makes it difficult to obtain finance
from banks and other financial institutions,which are in the formal sector.Moreover, both financial
and non-financial business development services (BDS) are needed for the value chain up gradation.
Recommendations
 Develop financial/ non-financial BDS for apricot VC, including business plans for key segments
 Create a forum, call it ‘Apricot Business Coalition’ (ABC), for VC actors to interact and access
BDS
 Host an investor conference for apricot VC actors,and invite public and private sectorpartners
4.2.2 Tomatoes
Annual production of tomatoes is around 6,455 ton in GB. With an estimated production of
55 tons, Skardu district contributes less than 1 % to the total GB production (RMA Report,
2014). The bulk of tomatoes consumed in GB are imported from down country. The growing
season is short, limited to the months of September and October only, in single cropping
zone. Storage is also not an option, as there is an oversupply of tomatoes during the winter
months from the harvest in Sind and Punjab, and prices fall dramatically. The prices of
tomatoes fluctuate between PKR 170/ kg during the spring and summer months, to PKR
30/kg during winter months.
The selection of tomatoes as one of the four VCs in SDP
command area follows the logic of import substitution,
during the summer months, when tomatoes are supplied
from cold stores in Punjab, and when the prices are at
their annual peak. This is possible by early production
with the use of protected cropping (Green Houses) and
sequential sowings to provide product to the local
market for a maximum period of at least 6 months.
The proposal is to specialize in the supply of seedlings
grown in green houses, to other parts of Baltistan, as
well as production and supply of fresh tomatoes from
June to end October,to cover the under supply from the
mainland. A further advantage is to dry the surplus
product, using the same drying technology as apricots.
The value chain (figure 1) is fairly simple, as producers
can directly supply fresh product to retailers in Skardu
town, which is the largest wholesale market in Baltistan.
The market for seedlings already exists on a small scale,
which can grow overtime as farmers in other parts of
Baltistan become aware of the benefits of early tomatoes.
Again, the centrallocation of SDP command area is an advantage, as there is daily
transportation from Skardu town to all parts of Baltistan. However,special packaging will be
required for the safe delivery of fragile seedlings.
Producer
Assembler/
Beopari
Retailer
Commission
Agent
Wholesaler
Consumer
Figure 2 Illustrative VC Map for
Tomatoes, taken from RMA Report

15. 15
Chart 2: Tomatoes: VC Actors and their Financial Needs
VC STEP VC ACTOR FINANCING NEEDS AND ISSUES
Production of
seedlings in green
houses
 Farmer
 FEG
 Farmers need access to credit to purchase inputs,
such as certified seed and green house technology
 Green houses may need sizeable initial investment
Production of fresh
tomatoes under
contract farming
 Farmer
 FEGs
 Short-term agricultural production loans are needed
 Farmers face difficulties in proving their bankability
 Supplier credit or in-kind credit to producers needed
for contract farming
Collection &
transportation
 FEGs
 Representative
of wholesaler
 Sizeable amounts of working capital is needed,
especially for making advance payments to growers
 For scaling up, specific financial products are
needed from MFIs and commercial banks,which are
not available
Marketing  Local mandi
 Retail shops
 Buyers’ credit
Summary of conclusions and recommendations for tomato VC
Early production of tomatoes for local market is a relatively new idea, and it is technology,
management and capital intensive. For this VC to work, investment in high quality green house
technology is paramount.
Recommendations
 Investment plans must follow various assumptions and tested underdifferent sensitivity analysis
 Only certified and high quality technology should be used,and sub-standard technology must be
discouraged
 Banks and other financial institutions must be included in the discussion around this VC
4.2.3 Cherries
The SDP command area can grow good quality cherries, when the supply in the rest of the
country has come to an end. However,poor road infrastructure between Skardu and
Islamabad is the main challenge.
Cherries are a high value fruit, with high demands not only in Pakistan but also in China,
Middle East and South East Asia. Presently, cherries are mostly sold to pre-harvest
contractors. They harvest, grade, pack and sell locally to traders and consumers and also
transport to down country markets for sale, but because of high perishability, the wastage is
high. This value chain has good potential for upgrading, especially given future trade
opportunities in the region.
As with other high value products, modern and market-demanded varieties are in short supply
and critical missing services along the value chain are supply of certified varieties,
processing, packaging, and transportation and establishing a cold chain. Cherries are selected
as a priority VC,keeping planned improvements in road and air transportation, such as up-
gradation of Skardu airport as an all weather international airport, widening and extension of
Skardu-Gilgit road, and improvement of KKH, all part of the China-Pakistan Economic
Corridor.
The following map illustrates an upgraded VC for fresh cherries, under the future scenario.

16. 16
`Figure 3: Supply Chain Plan for Cherries
Chart 3: VC Actors and their Financial Needs
VC STEP VC ACTOR FINANCING NEEDS AND ISSUES
Production in proper
orchards
 Nursery owners
 Farmers
 Establishing new nurseries requires long-term financing
 Financing at thefarm level is a major issue
Buying, picking and
post-harvest handling
Processing,
packaging storage
and transportation
Packaging and
transportation
without cold chain
 Wholesaler
 Service providers
 Processor
 Transporter
 Sizeable amounts of working capital needed to pay for the
raw product, labor and transportation
 There are no fresh fruit processing facilities in Baltistan,
with a proper cold chain. Investment needs include capital
investment in plant, packaging, transportation, insurance
and working capital
 For fresh products, federal government provides
subsidized rates on PIA, but this is not feasible due to
infrequent flights and non-availability of cargo service in
small aircraft. This subsidy can be provided through
NATCO, which can provide a daily service, using fast
pick up trucks between Skardu and Islamabad
Marketing  Wholesale markt
 Supper markets
 Exporter
 Subject to terms of payment from end buyers
Picking
Initial
Packing
Transportation
Cold Storage
Wholesalers’ agents collects raw
product from the farm/ orchard
using trained labor
Initial packing of the raw product in
special trays
Quick transportation of the raw
product to processing facilities using
light pick-up trucks
Raw product collected from orchards is
stored in the cold store on the same day
Final product is washed, graded &
packed at the processing facilities and
kept in the cold store
Processing&
final Packing
Supply
towards
Client
Cold container leaves for Islamabad /
or the Skardu airport for international
cargo
From collection
to cold storage
of the raw
materials will
take one day to
complete the
process
Cold container arrives at the auction
market in ISB/ or to the client’s facility
at export destination
Reached
client
Farmers procure certified plants
from commercial nurseries and
establish orchards,
Production

17. 17
Summary of conclusions and recommendations for Cherries
This VC is recommended given the future potential. The biggest advantage is climate and off-season.
Cherries can be harvested in Skardu from early July to end August orearly September, when supplies
from all parts of Pakistan, including low lying areas of Gilgit have already come to an end. Since plant
growth rate in SDP area is slow, one forward looking idea may be to invest in dedicated commercial
nurseries in low lying areas of Gilgit, from where grafted plants can be transplanted directly to
orchards in SDP command area. Since this is a futuristic idea, including the possibility of air
transportation in near future from an all whether airport which is planned, the VC should be planned
along modern scientific lines, including processing and establishment of a cold chain.
Recommendations
 Commercial banks must be coopted into this VC, with appropriate incentives
 Public-private financing mechanisms are needed,especially in the provision of new technology,
i.e., certified plant material and transportation
 Grants available from the project should be redesigned to promote investments in modern
processing facilities for fresh fruit, starting with cherries, including the establishment of a cold
chain for air and surface transportation.
4.2.4 Green Peas
Green peas are the fourth priority VC selected for SDP command area under this study, and it
follows the same logic of market demand and higher prices in the off-season markets of the
south. As shown in the following extract taken from RMA Report (Table 1: Market Supplies
and Prices of Selected Commodities), green peas fetch the highest price of PKR 4 k to 8 k
when the supply chain firmly shifts to the northern temperate region during the height of
summer in the south.
Table 4: Highest Price Advantage
Green Peas/ supply J F M A M J J A S O N D Unit Unit Price (PKR)
Punjab 50 kg 1000 – 2000
KPK 50 kg 3,000 – 7000
GB 50 kg 4000 – 8000
Source: Extracted from RMA Report
Cultivation of green peas under similar climatic conditions and elevation is presently done
successfully in the Babusar Valley of Diamer District in GB. In SDP command area,limited
quantities are also grown and marketed locally. The window of opportunity can be extended
even further to the rest of October, by introducing cold tolerant varieties. The period is when
GB has a virtual monopoly over the supply, and the fresh product can fetch the highest price.
The main supply side financing issues in production and supply revolve around technology,
crop inputs, management, and post harvest and transportation. The longer distances to
markets mean higher transportation costs. The transportation issue is critical for green peas,
which must be supplied to market fresh, using swift transport. But hiring dedicated light
transport involves paying for both ends of the journey, going down country with goods, but
coming up country empty, because most of the goods are transported through bulky trucks.
Although these trucks go back empty, and may charge less in transport costs, but trucking is a
slow process for green peas.
Green peas must be produced with the highest quality standards and with precision so that the
right quantities are harvested at the right time to supply the market throughout the window of
opportunity. The most preferred supply management strategy should be daily supply of
manageable quantities in a rapid and regulated manner, using light pick-up trucks. Poultry
suppliers from the south already use this strategy.

18. 18
`Figure 4: Supply Chain Plan for Cherries
Green peas can be developed as a high-value VC, with good potential for incremental value
addition and vertical and horizontal growth. However,in order to realize this high potential
the VC development will require substantial capital investment. The financing strategy must
leverage public money to raise private and in many instances, community capital. Investments
in support services,such as research,extension and supply of high quality and certified
production inputs, are as important as investment in the supply chain itself.
Chart 5: VC Actors and Financial Needs
VC STEP VC ACTOR FINANCING NEEDS AND ISSUES
Supply of production
inputs
Production
 Lead enterprise
 Contract farmers
 Farmers
 FEGs
 Production credit, suppliers credit, in kind credit to
contract farmers and FEGs
 Substantial amounts are involved, but short-term
agricultural credit is difficult and expensive to obtain
 Financing at thefarm level is a major issue
Buying, picking and
post-harvest handling
Packaging and
transportation
without cold chain
 Wholesaler
 Service providers
 Trader
 Transporter
 Sizeable amounts of working capital needed to pay for the
product, labor and transportation
 This is a key bottleneck in the VC; dedicated light and
rapid transport is expensive and unreliable
Marketing  Wholesale
market
 Supper markets
 Exporter
 Subject to terms of payment from end buyers
 Premium prices are possible from high quality products
delivered to high-end markets like five start hotels
Aggregation
Packing
Transportation
Marketing
 Lead agribusiness companies
 Local supply companies
 Contract farmer/ FEUs
Specialized packing in 50 kg attractive
bags with a brand name
Quick transportation using light pick-up
trucks, possibly using subsidized and
dedicated public transport for some years
 Wholesale markets in Isb/ Lahore
 Super markets
 Five star hotels
Processing&
retail packing
Product is processed and value added to,
such as organic and fair-trade certification,
and targeted at high-end retail stores/
export
Highest quality and well-suited inputs
and production technologies, and crop
management
Production

19. 19
Summary of conclusions and recommendations for Green Peas
Green Peas can be a strategic VC based on the natural comparative advantage of GB and potentially,
with good competitive advantage,too. Green peas can be to GB, what French beans are to Kenya.
Under an AKDN intervention, French beans are grown in Kenya and exported to France, for a hefty
margin. The pluses are many: market-driven, off-season advantage and high-end segment, but also
requiring hi-tech management, specialization, and high capital input. The VC development strategy
should focus on leveraging financial resources internal and external to, and in support of VC. Public,
private, and community level investment opportunities should be identified along the supply chain, and
innovative financial products developed to support different services. To develop, drive and upgrade
this high-value VC, lead local companies are needed that a supply chain approach is needed corporate
approach is needed, such as lead enterprises.In the long-term, as the transportation bottleneckare
removed, value from further down the VC can be captured,by introducing new innovations,such as
organic, fair-trade, and green certification.
Recommendations
 Supporting lead companies to co-invest in this VC, through risk capital from the project budget
 Creating a smart, dedicated, and reliable transport systemthrough public, project and private
participation.
 Branding the product for high-end markets, and incrementally adding further value through
product and market innovations,and targeting export markets with green, fair and organic
certification and attributes.
5. SUPPORT ACTORS IN VCs
5.1 Overview
Skardu has a good concentration of support organizations, both in the public and civil society
sectors. The primary mandate for agricultural development lies with public sector agencies,
but marketing and entrepreneurship development is their weakest point. Other NGOs,
including UN agencies have in the past provided key support services,but their presence is
missing for nearly two decades. Good news is that IFAD is planning to return to the region,
which can be a great development.
Over time, more and more support actors are emerging and that surely is creating a multiplier
effect. But coordination and harmony is needed around key priorities, such as developing a
common vision of mountain agriculture, and pooling of experience, expertise and resources.
The way forward should be to breakdown sector boundaries and crowding-in all public and
private and community services in support of selected high value VCs.
5.2 Public sector actors
Government is the largest provider of key services, such as trunk roads, valley and link roads,
irrigation, and research and extension services. The public sector is technically competent, but
lacks operational funds that limit its contribution and effectiveness. For instance, MARC and
DoA have only enough budgets to pay salaries but not for importing much-needed germplasm
and support production of market demanded and certified varieties of plants and production
inputs. Reforms and innovative approaches are needed in the public sector to facilitate
agriculture development, and developing these selected VCs can be a good start. One of the
recommendations of this report, therefore,will be to set aside some project funding for
specific services from proactive public sector agencies. One such innovation could be for
NACTO to offer dedicated and reliable transportation services for agricultural commodities,
under a partnership agreement with the project. Other ideas to improve public sector services
would be co-financing of mother nurseries and restocking, using imported quality germplasm,
and leasing out public facilities, such as green houses, processing units and green houses, to
private operators.

20. 20
5.3 Community level Actors
At the community level, Local Support Organizations (LSOs) have emerged as good
platforms for delivery of key market services and facilitating transactions, such as pooling
and processing of market bound produce, and provision of production and post-harvest
services. Financial products can be developed in which LSOs can organize contract farming,
distribute production inputs, aggregate supplies, and provide production and post-harvest
services through their members. The following Table provides a summary of support actors,
operating in the command area,with their issues and potential roles to contribute to the
development of selected VC.
Chart 6: Support Actorsin selected VCs
SUPPORT ACTOR KEY ROLE ISSUES
Department of Food&
Agriculture, Govt. ofGilgit-
Baltistan
 Policy makingforagriculture relatedsub-
sectors.
 Research & Development (R&D)fornew
products.
 Extension services to producers.
 Key services, like storage andseed
provision.
 Capacity buildingof producers and
marketinggroups
 Lowcapacity andlackof resources
 Role in marketingnot defined
 No facility andplanformarketing
andpromotion.
MountainAgricultural
Research Center (MARC)
(Federal Agency)
 Research on relevant crops in mountain
setting
 Supply of germplasm
 Under-funded
 Remote control from PARC in
Islamabad
Federal Seed Certification
& RegistrationDepartment
 Registrationof Companies involvedin Seed
Business,
 Certificationofcropandvegetable seeds.
 Testingandlaboratory services.
 Implementation ofseedpolicy
 Lowcapacity andlackof resources
 No clear mandatein promotingseed
marketing
PakistanCenterfor
Scientific Research
(PCSIR)
 Technology development / transfer for food
processing
 Capacity buildingand
 Not linkedwith industry
 Too small operations
Chamber of Commerce &
Industries, GB
 Linkage to mainmarketingactors at national
andinternational level.
 Membership formarketinggroup.
 Support to get government subsidy for
export andimport.
 Lowcapacity andlackof resources
 Politicized, membership dominated
by non-business people
NGOs andCSOs  Organizingmarketinggroups.
 Capacity building
 Linkage with market.
 Support in business planning
 Link with financial services in the market.
 Help in collective marketingandinput
supply
 Lowcapacity andlackof resources
 Limitedmandate andboundaries
 High turnoverof humanresource
Transporter/communication,
inputs, credit institution,
input suppliers etc.
 Service provisionin theirrespective sector
on market terms.
 Major sources of market information
 Provide informal linkage withthe market
players
 Weak infrastructure
 Lowcapacity for investment.
 Lack of leadenterprise.
Leadenterprises/
Entrepreneurs/ marketing
Associations processors,
wholesaler, retailing
 Main actors who under take buyingand
sellingfunctions
 Provide embeddedservices to market agents
andstakeholders.
 Main actors to determine the price.
 Packagingservices toproducers and
consumer.
 Lake of capacity, entrepreneurship,
resources etc.
 Lack of linkage, MISandmarket
access.
 Availability of inputs
 Scale andquality of the produce
 Weak market infrastructure
Producers Associations  Primaryplace to pool, grade andpackaging
of product
 Effective rolein pricingof theproduces.
 Lack of knowledge on pre & post
harvest management.
 Lack of entrepreneurshipadmarket
led horticultureproduction

21. 21
Summary of conclusions and recommendations for Support Actors
Support actors have a pivotal role in VC development, from policy and regulation to research,
infrastructure, input supply and for targeting subsidies and other essentialservices, which the private
sectorcannot provide. However, public sectorservice providers need to change their image and
orientation from passive provision of free services, to a sectordevelopment mode, focus on key supply
chains, be more entrepreneurial, work in support of the private sector, and leverage their underutilized
and underperforming capacity, assets and resources.
Recommendations
 The key recommendation is for the SDP management to recognize public sectoractors as service
providers, and include them in relevant service contracts to deliver well-defined services
 Create an innovative transportation service under PPP arrangement, ideally through a partnership
with NATCO, in which the project pays for the capital cost of 2-3 pick up trucks, while the
NATCO provides dedicated services and recovers its running costs from discounted freight
charges paid by traders
 Provide small grants to LSOs and affiliated FEGs, V/WOs, individual service provides and local
companies, to invest in bulk supply of production inputs,such as seed and plants, fertilizer,
chemicals, packing material, and production and post-harvest services,as well as in product
aggregation, processing,and storage facilities, and local and long-distance transportation facilities
6. FINANCIAL GOVERNANACE
6.1 Baseline Situation
The baseline situation is characterized by low investment, poor access and many service gaps.
Presently, commercial banks do not lend to agriculture due to the complexities and risks in
agricultural production and agribusiness. As a result of this, local branches do not have
specialized staff for evaluation of credit risk, analyze certain high-potential agricultural value
chains, and calculate the economic potential of emerging agribusinesses.
From the development finance side, ZTBL and FMFB are the only lenders to agriculture.
Their mandate and local networks enable them to be close to their clients and offer loans,
deposits, and payment services. However,being a public sector lending facility, ZTBL may
be prone to political influence and lacks resources and entrepreneurial capacity to offer a
diversified portfolio, offering customized loan products for different agricultural enterprises
and maintaining specialized staff. FMFB being a retail facility has high delivery costs, which
translate into high cost of financing for small borrows. Also, although development banks
might have extensive agricultural sector knowledge, they frequently lack the operational
professionalism of a commercial bank.
All formal lending institutions require collateral for their loans, often worth twice the loan
value or more. Most of them look to land as collateral, but there are many legal, tenure and
social issues that complicate land as an effective collateral. Generally speaking, land
ownership is customary, owned by family members, typically the male members, and unless
it is divided and legally registered in their individual names, collateral formalities cannot be
completed. Moreover, once divided, the value of the land may be insufficient to equal the
required value of collateral. Legal processes to transfer land are highly complex, expensive
and often prone to fraud.
V/WOs and welfare societies are well positioned to service the farmers and micro enterprises
in the informal sector,without too many strings attached to their financing, but their scale is
limited and they need professional support and capacity building. There is a history of
community-level microcredit, and it still continues on small scale, which can be renewed.

22. 22
Within the value chains, farmers are very small actors who have to face more powerful
traders and off-takers, especially the pre-harvest buyers of primary produce. The SDP has
organized small farmers into FEUs, which helps to bridge the gap between the individual
small farmer and the large market players, while ensuring that the farmers can assume a more
equal market position within the supply chain. This approach is sound, but it has not
translated into easy access to appropriate financial services.
6.2 Strategy for Improving Financial Governance
The primary objective is to catalyze private sector investment in developing and upgrading of
four VCs that have been selected to help transform agriculture in the command area. The
investment model proposed is one that develops and democratizes financial markets and
empowers local actors. The strategy is financial inclusion, ensuring easy and equal access of
VC actors to available financial and support services, as well as developing new innovative
products and customization.
6.3 Investing in Support Infrastructure
The command area is accessible to all parts of Baltistan and well connected with Gilgit
Division. A tender has already been floated to widen the Skardu-Gilgit Road, and a proposal
is under consideration by the Civil Aviation Authority of Pakistan to upgrade the Skardu
airport to an international airport.
This will connect the entire GB, and particularly the command area with regional markets,
especially China and Central Asia. Keeping these future prospects in mind, the project can
invest in support infrastructure and in creating a Mini “Opportunity Zone’ in the command
area for the whole of GB. This implies targeted investments / financing input supply
businesses, auction markets, processing and storage facilities, cold chains and transport
logistics.
6.4 Democratizing Financial Markets
Specifically, the up gradation strategy should incentivize crowding-in of service providers as
much as possible, providing a variety of customized investment products and services for
every segment of the VC. Financial resources available within the project can be leveraged to
increase the functioning of local financial markets, improve and sustain access to public,
private, and community sector sources of finance.
That will require reforms, innovations and under-writing certain under performing sectors,
such as recapitalizing and reorganizing more informal and flexible community-based
financing mechanisms, for which there is a good base. Creating an enabling financial
ecosystem that is broadly beneficial and particularly empowers local VC actors, and
contributes to democratizing financial governance.
6.5 Financial Products and Services
The integrated financing needs for the four selected VCs are illustrated in the figure 5. What
are the key barriers and what instruments are needed to consolidate and upgrade VC financing
is summarized in the following Chart 7 on the next page.
Figure 5: Financial needsalong VC
Pre-harvest finance Start-up/ inventory finance Trade/ transport finance
Input
suppliers
Primary
Producers
Processors /
traders Transporters Marketers

23. 23
Char 7: Proposed instrumentsto upgrade Financial Governance
NEEDS BARRIERS INSTRUMENTS
Pre-harvest
Finance:credit
for high quality
production
inputs, labor and
management
Small farmers are too
small for formal banks
to lend to
Cost of delivery in
retail banking /FMFB
is two high between
28% and 32%
Suppliers input credit
leads to unfavorable
terms of trade for
farmers
Complex collateral
requirements mean
farmers are
automatically excluded
from the formal sector
Formalize and professionalize community
finance
 Restock community level savings with
small grants to be used as revolving credit
funds for members
 Upscale and formalize V/WOs as formal
Credit Unions at LSO level
 Engage a private sector company/ Audit
firm, to build their professional capacity
Supplement and compliment public support
services
 Provide conditional operational funds to
public sector agencies to deliver certified
seed and plant material to private
distributers
 Prequalify selected public sector agencies,
such as DoA and MARC to participate in
service and supply contracts,and co-
investment proposals (but not for grants)
 Build the capacity of key staff in relevant
sectors
Start-up/
Inventory
Finance: start-up
and working
capital for
agribusinesses in
the middle
segments of the
VCs: production,
aggregation,
processing and
trade
Extremely limited
access to investment
capital, only limited
and highly
collateralized
financing from ZBTL
Commercial banks
unwilling and unable
to lend to agriculture
Corporate sector does
not have reliable
information to invest
Leverage private capital:lower the risk for
commercial banks to lend to agriculture, by
providing limited guarantees or topping up
their low margins, or both
Leverage development finance: form JVs with
peer projects, such as IFAD to devise
innovative PPP investment projects in
mountain agriculture, from high-quality mother
nurseries to processing plants, auction facilities,
storage capacity, cold chains and transportation
Facilitate entry of corporate sector: undertake
joint research and feasibility studies with
industry leaders
Trade/ Transport
finance:
The transportation
sector is organized for
one way trade, from
south to north, not the
other way round
Invest in a smart reverse transport service: co-
invest with NATCO,or a private local
transport/ goods forwarding company that
specializes in rapid logistics of fresh fruit and
vegetables to down country

24. 24
7. CONCLUSIONS AND RECOMMENDATIONS
7.1 Conclusion
The specific conclusions and recommendations are provided under each area of opportunity.
In this last section, we present some generic findings and possible ways forward.
The four value chains are selected on the basis of a composite matrix of benefits. The calculus
includes market-demand, natural advantage (off-season,natural growing conditions), and
future competitive advantage. The future competitive advantage is expected to come from
improved market access to high-end markets under the Economic Corridor project, including
all weather air cargo, ungraded KKH,and a possible rail link. But this needs to be planned
and strategized, such as branding and adding higher value attributes.
These value chains can best be developed using new technology—for instance latest and
market demanded varieties that are typically not locally available, and must be initially
imported, at a considerable cost. Financial markets are presently fragmented and not well-
suited to supporting commercial farming and financing of small agribusinesses. But this can
change under a new strategy in which agricultural development can be reorganized along the
lines of a supply chain, driven by a core portfolio of high-potential VCs.
Financial services along the value chain can be upgraded using an open-mind approach, such
as working with all formal and informal service providers, not only to improve service
provision, but also to increase access and market participation. This requires strategic
partnerships and deployment of smart subsidies and incentives to leverage VC finance from
all public, commercial and community sources.
7.2 Recommendations
1. The first recommendation calls for creating a loose coalition of value chain actors in
SDP,and using this forum for on-going communication on all developments in the
VCs,as well as to benefit from it as a sounding board or an impact monitoring tool
2. Related to this recommendation is harmonizing and incentivizing collaboration
among institutional actors for R&D,product and market development, financing,
policy and regulation. In essence this means better professional interaction, and
coordinated actions in planning, project development and financing by support
agencies. Ultimately, these VC must be owned by local actors, communities,
government and other support agencies
3. Consolidate and vertically integrate FEUs and link them with informal V/WO
banking. Reorganize and formalize V/WOs in SDP command areas into Credit
Unions at the UC/ LSO level, and train them through a lead audit firm
4. Invest in a smart agro-logistic company, either partnering with NATCO or with a
private transport company
5. Invest in innovative mobile phone Apps to improve the performance of under-
developed transportation services, especially market-bound transportation to down
country. A student from GB currently studying at Asian Women’s University in
Bangladesh is working on an App that will send SMS alerts to mobile phones of
subscribing truck drivers, informing them of just-in-time cargos to be hauled along

25. 25
their route, while returning to their basis after delivering their main one-way cargo at
their destinations in GB)4
6. Drag (incentivize) commercial banks into value chain financing, using incentives
such as guarantees or topping up their margins.
7. Co-invest with relevant public sector service providers to develop support
infrastructure and increase supply of high quality production inputs, such as certified
plants and seed,to private distributors
4 Copyright: Ms. Aqsa Kiran