The International Fund for Agricultural Development (IFAD) and Equity Group have launched a US$200 million financing mechanism aimed at helping smallholder farmers and rural businesses in East Africa invest in climate adaptation.
The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) was launched during the Africa Food Systems Forum 2026 in Kigali, Rwanda, as concerns grow over limited access to finance for farmers and rural enterprises seeking to cope with the effects of climate change.
The 12-year programme will operate in Kenya, Uganda, Tanzania and Rwanda, with the ambition of reaching about 260,000 smallholder producers 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 is structured around US$180 million in lending capital and approximately US$20 million in technical assistance.
The lending capital is expected to revolve through about four investment cycles, generating approximately US$266 million in loans to farmers and rural businesses across East Africa’s food systems.
A key feature of the programme is Equity Group’s decision to commit its own balance sheet alongside concessional funding.
Of the US$180 million lending base, US$90 million will come from Equity Group, matching the concessional contribution on a one-for-one basis.
The financing will use a risk-sharing structure in which international financing partners provide first-loss and mezzanine protection, while the bank carries the senior risk.
Speaking during the launch, IFAD Vice President Dr Gérardine Mukeshimana said the success of climate adaptation finance would depend on whether global commitments could be converted into practical investments in rural communities.
“ARCAFIM’s ambition is to make rural climate adaptation a recognizable, viable and sustainable business line for African financial institutions,” she said.
Mukeshimana said the mechanism would provide financial institutions with tailored products, knowledge and systems needed to expand climate adaptation lending.
Although the programme will begin in East Africa, she said the model was designed to be adapted and replicated in other parts of Africa.
Equity Group Managing Director and 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,” he said.
Mwangi said Equity’s decision to put its own balance sheet alongside concessional capital was intended to build a sustainable market for climate-resilient lending rather than treat it as charity.
Equity Bank Kenya Managing Director Moses Nyabanda said the bank would finance farmers and agricultural producers directly as well as through microfinance institutions, SACCOs and value chain companies.
The programme will also extend financing to rural MSMEs while providing training on climate adaptation finance and sustainable agricultural practices.
The technical assistance component will support investments in areas such as irrigation and water harvesting, livestock and dairy resilience, post-harvest storage, renewable energy and climate-resilient agro-processing.
Green Climate Fund Director of the Department of Africa Region Catherine Koffman said ARCAFIM demonstrated how public and private capital could be combined to scale up investment in climate-resilient agriculture.
The Green Climate Fund has committed US$55 million to the programme.
Finland’s Ministry for Foreign Affairs and the Nordic Development Fund are also among the co-financiers, alongside the governments of Denmark and the European Union.
Nordic Development Fund Managing Director Satu Santala said the initiative would help reduce investment risks while mobilising more financing for smallholder farmers and rural businesses.
The launch brought together representatives from IFAD, Equity Group, governments of Kenya, Uganda, Tanzania and Rwanda, private investors, development partners and climate finance institutions.
The agreements were signed by Mukeshimana on behalf of IFAD and Nyabanda for Equity Bank Kenya during a ceremony presided over by Equity Bank Rwanda Managing Director Hannington Namara.
IFAD and Equity Group say the ultimate goal is to make climate adaptation lending a commercially sustainable business line for African financial institutions beyond the period of concessional funding.
The two institutions have identified West and Southern Africa as potential next regions for expansion of the model.
