Smallholder farmers and rural businesses in East Africa are set to benefit from a new $200 million financing mechanism aimed at helping them cope with the growing effects of climate change.
The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) was launched at the Africa Food Systems Forum 2026 in Kigali, Rwanda, by the International Fund for Agricultural Development (IFAD) and Equity Group.
The 12-year programme will operate in Uganda, Kenya, Tanzania and Rwanda and is expected to provide financing to about 260,000 smallholder farmers and 500 rural micro, small and medium-sized enterprises.
At least half of the intended beneficiaries will be women, while 30% 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 has been created to address one of the major problems facing farmers and rural businesses in Africa: access to affordable finance for investments that can protect them from climate-related risks.
Farmers across the region are increasingly exposed to droughts, floods, changing rainfall patterns, pests and other effects of climate change. However, many smallholder farmers and rural businesses struggle to obtain loans to invest in measures that can make their operations more resilient.
The new mechanism will provide $180 million in lending capital and about $20 million for technical assistance.
The $180 million lending capital is expected to revolve through about four investment cycles, generating roughly $266 million in loans to smallholder farmers and rural businesses involved in food production and related activities.
A key feature of the programme is that Equity Group will put its own money into the lending pool instead of simply administering funds provided by development partners.
Of the $180 million lending capital, $90 million will come from Equity Group’s balance sheet, matching the concessional funding from international partners on a one-for-one basis.
The programme also has a risk-sharing arrangement. International financing partners will cover the first-loss portion of the loans, while a mezzanine layer of risk will be shared with Equity. The bank will take on the senior risk.
The arrangement is intended to make it easier for financial institutions to lend to farmers and rural businesses that may traditionally be considered too risky.
ARCAFIM is supported by the Green Climate Fund, the Ministry for Foreign Affairs of Finland and the Nordic Development Fund. It is also co-financed by the government of Denmark and the European Union.
The Green Climate Fund has committed $55 million to the programme.
The programme will also provide technical support to financial institutions, including microfinance institutions and savings and credit co-operative organisations, commonly known as SACCOs.
This support will help these institutions develop and provide loans specifically designed for climate adaptation.
Farmers and rural businesses will also receive information to help them identify investments that can reduce their exposure to climate risks.
These investments will include irrigation and water harvesting systems, improved dairy and livestock production, post-harvest storage, renewable energy and climate-resilient agro-processing.
Dr Gérardine Mukeshimana, IFAD’s vice-president, said the success of climate adaptation finance would depend on whether international commitments could be turned into practical investments in rural communities.
“ARCAFIM’s ambition is to make rural climate adaptation a recognisable, viable and sustainable business line for African financial institutions,” Mukeshimana said.
Although the programme will begin in East Africa, she said the model could later be adapted and replicated in other parts of Africa.
Dr James Mwangi, Equity Group Holdings’ group managing director and chief executive, said the programme was intended to change the way 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 meant to create a sustainable market for climate adaptation finance rather than treat it as charity.
“If we prove this in East Africa, the model belongs to the whole continent,” Mwangi said.
Moses Nyabanda, managing director of Equity Bank Kenya, said the bank would provide financing directly to farmers and agricultural producers as well as through microfinance institutions, SACCOs and companies involved in agricultural value chains.
The bank will also finance rural businesses and support the adoption of 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,” Nyabanda said.
Catherine Koffman, director of the Africa Region department at the Green Climate Fund, said ARCAFIM showed how public and private financing could be combined to increase investment in climate-resilient agriculture.
She said the fund’s $55 million commitment had helped bring together partners and attract commercial investment from Equity Group.
Juha Savolainen, director general at Finland’s Ministry for Foreign Affairs, said bringing private capital into sustainable development was an important part of Finland’s development policy.
He said investing in climate-resilient agriculture could increase farmers’ productivity and incomes while reducing the risks faced by financial institutions when lending to the agricultural sector.
Satu Santala, managing director of the Nordic Development Fund, said the fund had supported ARCAFIM from its early stages because of the need for mechanisms capable of attracting more investment into climate adaptation.
The launch brought together representatives of IFAD, governments from 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 on behalf of Equity Bank Kenya in a ceremony presided over by Hannington Namara, managing director of Equity Bank Rwanda.
The partners say one of the most important measures of the programme’s success will be whether climate adaptation lending continues after the concessional funding is exhausted.
ARCAFIM has therefore been designed to make climate resilience financing a normal commercial banking product that financial institutions can continue offering in the long term.
The partners also hope the programme will generate lessons that can be used to develop similar climate finance mechanisms in other parts of Africa.
Southern and West Africa have already been identified as possible next regions where the ARCAFIM model could be introduced.
