East African farmers and rural businesses are set to gain greater access to climate adaptation finance through a new US$200m mechanism launched by the International Fund for Agricultural Development (IFAD) and Equity Group.
Source: Supplied | ©Sued Ndamage
The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) was launched at the Africa Food Systems Forum 2026 in Kigali, Rwanda, on 4 September. The 12-year mechanism will operate in Kenya, Uganda, Tanzania and Rwanda, targeting approximately 260,000 smallholder producers and 500 rural enterprises.
Equity commits US$90m
ARCAFIM comprises US$180m in lending capital and approximately US$20m in technical assistance. As the lending capital is expected to revolve through roughly four investment cycles, it could generate about US$266m in loans to smallholder farmers and micro, small and medium-sized enterprises (MSMEs) across East Africa’s food systems.
Of the US$180m lending base, US$90m will come from Equity Group’s own balance sheet, matching the concessional contribution one-for-one.
The mechanism also includes a climate adaptation taxonomy to help participating financial institutions, farmers and agricultural businesses identify viable investments in climate resilience. Credit risk will be shared across the financing partners, with international partners covering a first-loss layer, a mezzanine layer shared with the bank, and Equity carrying the senior risk.
At least 50% of the intended beneficiaries will be women and 30% youth. The initiative is expected to strengthen food security for approximately 1.2 million people and benefit an estimated 1.5 million people directly and indirectly.
Financing climate resilience
The technical assistance component will support participating microfinance institutions and savings and credit cooperative organisations (SACCOs) in originating climate adaptation lending, while helping farmers and rural enterprises identify investments that can protect their operations from climate risks.
These include irrigation and water harvesting, dairy and livestock resilience, post-harvest storage, renewable energy and climate-resilient agro-processing.
Gérardine Mukeshimana, vice president of IFAD, said the success of climate adaptation finance will ultimately depend on its ability to translate global commitments into tangible investments in rural communities.
“Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM)'s ambition is to make rural climate adaptation a recognizable, viable and sustainable business line for African financial institutions. It will support tailored financial products and a climate adaptation financing taxonomy, so that participating institutions gain the experience, systems and confidence to continue expanding adaptation finance. The mechanism is starting in East Africa, but it is designed to be adapted and replicated across Africa,” said Mukeshimana.
The mechanism is designed to make climate resilience lending a commercially sustainable business line for financial institutions beyond the period in which concessional capital is available.
Building a market for rural finance
Dr James Mwangi, group managing director and chief executive officer of Equity Group Holdings, said the mechanism reframes how African finance sees the rural borrower.
“Africa’s smallholder farmers are not waiting to be rescued. They are entrepreneurs operating in the most demanding risk environment on earth, and what they have lacked is a financial system built to back them. ARCAFIM changes that equation. By committing our own balance sheet alongside concessional capital, we are not funding a project — we are building a market, one in which lending climate resilience becomes an ordinary banking business rather than an act of charity. Dignity begins with being seen as bankable. If we prove this in East Africa, the model belongs to the whole continent,” said Dr Mwangi.
Moses Nyabanda, managing director of Equity Bank Kenya, said the bank will finance smallholder farmers and agricultural producers directly and through microfinance institutions, SACCOs and value chain companies, while extending financing to rural MSMEs.
“Through ARCAFIM, we will finance smallholder farmers and agricultural producers directly and through microfinance institutions, SACCOs and value chain companies, while extending financing to rural MSMEs. We will also build capacity on climate adaptation finance and promote sustainable agricultural practices and technologies. The goal is simple: enable farmers and agricultural businesses to adapt, increase production, grow revenues and incomes, and become more resilient to the effects of climate change,” said Nyabanda.
Mobilising private capital
The mechanism is convened with the co-financiers of the Green Climate Fund, the Ministry for Foreign Affairs of Finland and the Nordic Development Fund, and is also co-financed by the Government of Denmark and the European Union.
Catherine Koffman, director of the Department of Africa Region at the Green Climate Fund, said its US$55m commitment helped structure the mechanism to mobilise commercial investment from Equity Group and expand access to climate adaptation finance.
“ARCAFIM is an important example of Green Climate Fund’s (GCF’s) catalytic role in bringing partners and capital together to scale up investment in climate-resilient agriculture. Through its US$55 million commitment and close collaboration with IFAD and the program’s financing partners, GCF helped structure a mechanism that mobilizes substantial commercial investment from Equity Group and expands access to adaptation finance for smallholder farmers and rural businesses across East Africa.” said Koffman.
Juha Savolainen, director general at Finland’s Ministry for Foreign Affairs, said public-private collaboration can help channel capital towards sustainable agricultural investments.
"Mobilizing private capital for sustainable development is central to Finland’s development policy. ARCAFIM demonstrates how public-private collaboration can unlock financing for sustainable investments and channel capital to where it is needed most. Strengthening the resilience of agriculture to climate change is a smart investment that benefits both communities and businesses: it increases productivity and incomes for smallholder farmers while reducing the risks associated with agricultural finance," said Savolainen.
Satu Santala, managing director of the Nordic Development Fund, said its support for ARCAFIM reflected the importance of mechanisms that can unlock greater investment in climate adaptation.
“NDF is pleased to have supported ARCAFIM from the very beginning, helping lay the foundations for a mechanism that can unlock greater investments in climate adaptation. Together with our Nordic and international partners, we are proud to reduce investment risk and mobilise financing for smallholder farmers and rural MSMEs. ARCAFIM demonstrates how innovation, partnerships, risk-sharing, and catalytic finance can help accelerate climate adaptation where it is needed most,” said Santala.
A model for wider Africa
The launch brought together representatives from IFAD and financing institutions, governments from Kenya, Uganda, Tanzania and Rwanda, private-sector investors, development partners and climate finance institutions. The agreements were signed by Mukeshimana for IFAD and Nyabanda for Equity Bank Kenya.
By strengthening financial intermediation and private lending channels across agricultural value chains, ARCAFIM aims to demonstrate how climate adaptation finance can become a sustainable business line while improving access to finance for underserved rural communities.
IFAD and Equity Group also aim to use lessons from the initiative to replicate blended climate finance approaches in other regions of Africa, with Southern and West Africa identified as potential next regions.
