Smallholder farmers and rural businesses in East Africa are set to gain greater access to climate adaptation finance following the launch of a US$200 million financing mechanism designed to help them invest in climate-resilient agriculture.
The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) was launched on Friday by the International Fund for Agricultural Development (IFAD) and Equity Group at the Africa Food Systems Forum 2026 in Kigali, Rwanda.
The 12-year initiative will operate in Uganda, Kenya, Tanzania and Rwanda, targeting about 260,000 smallholder farmers and 500 rural micro, small and medium-sized enterprises (MSMEs).
At least half of the intended beneficiaries will be women, while 30 per cent will be young people. The programme is expected to strengthen food security for about 1.2 million people and benefit an estimated 1.5 million people directly and indirectly.
ARCAFIM comprises US$180 million in lending capital and about US$20 million in technical assistance. The lending funds are expected to revolve through approximately four investment cycles, potentially generating about US$266 million in loans for farmers and rural businesses.
A key feature of the mechanism is Equity Group’s commitment to put its own money at risk alongside public and concessional financing.
Of the US$180 million lending base, Equity Group will provide US$90 million from its own balance sheet, matching the concessional funding on a one-for-one basis.
The financing will use a risk-sharing structure in which international partners provide first-loss protection, a second layer of risk is shared with Equity, while the bank takes on the senior risk.
The model is intended to encourage commercial banks to treat climate adaptation as a viable business opportunity rather than relying on development funding alone.
Speaking at the launch, IFAD Vice President Dr Gérardine Mukeshimana said the initiative was designed to turn climate adaptation commitments into practical investments for rural communities.
“ARCAFIM’s ambition is to make rural climate adaptation a recognizable, viable and sustainable business line for African financial institutions,” Mukeshimana said.
She said the mechanism would provide financial institutions with tailored products, technical expertise and a climate adaptation financing taxonomy to help them identify and finance viable climate-resilience investments.
Although the programme will begin in East Africa, Mukeshimana said the model could later be adapted and replicated in other parts of Africa.
The technical assistance component will support microfinance institutions and savings and credit cooperative organisations (SACCOs) to develop and provide climate adaptation loans.
Farmers and rural businesses will also receive support to identify investments that can protect their livelihoods from climate-related risks. These include irrigation and water harvesting, resilient livestock and dairy production, improved post-harvest storage, renewable energy and climate-resilient agro-processing.
Equity Group Holdings Chief Executive Officer Dr James Mwangi said the programme would change how financial institutions view smallholder farmers.
“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,” Mwangi said.
He said Equity’s decision to commit its own balance sheet alongside concessional funding was intended to create a sustainable market for climate-resilience lending.
Equity Bank Kenya Managing Director Moses Nyabanda said the bank would provide financing directly to farmers and agricultural producers while also working through microfinance institutions, SACCOs and agricultural value-chain companies.
The financing will also target rural MSMEs, with the programme supporting businesses to adopt sustainable technologies and practices that can improve production, revenues and resilience.
The Green Climate Fund (GCF), which has committed US$55 million to the initiative, said ARCAFIM demonstrates how public funding can be used to mobilise larger amounts of private capital for climate adaptation.
Catherine Koffman, Director of the GCF’s Department of Africa Region, said the fund’s support helped bring together partners and structure a mechanism capable of expanding climate finance for farmers and rural businesses.
The mechanism is also backed by the Ministry for Foreign Affairs of Finland and the Nordic Development Fund, with additional co-financing from Denmark and the European Union.
Finland’s Ministry for Foreign Affairs Director General Juha Savolainen said mobilising private capital for sustainable development was central to the country’s development policy.
Nordic Development Fund Managing Director Satu Santala said the organisation had supported ARCAFIM from its early stages, describing it as an example of how risk-sharing and blended finance can help unlock investment in climate adaptation.
The launch brought together representatives of governments from Uganda, Kenya, Tanzania and Rwanda, development partners, private-sector investors and climate-finance institutions.
The agreements were signed by Mukeshimana on behalf of IFAD and Nyabanda for Equity Bank Kenya, in a ceremony presided over by Equity Bank Rwanda Managing Director Hannington Namara.
Beyond financing farmers and rural businesses, IFAD and Equity Group hope ARCAFIM will provide lessons for expanding blended climate-finance models to other parts of Africa.
Southern and West Africa have already been identified as potential next regions for the mechanism.
