By Mulengera Reporters
Smallholder farmers and rural businesses in East Africa are set to gain access to a $200 million climate adaptation financing mechanism designed to help them invest in technologies and practices that can withstand the growing effects of climate change.
The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM), launched by the International Fund for Agricultural Development (IFAD) and Equity Group at the Africa Food Systems Forum 2026 in Kigali, will provide financing to farmers and rural enterprises in Kenya, Uganda, Tanzania and Rwanda over the next 12 years.
The initiative targets approximately 260,000 smallholder producers and 500 rural micro, small and medium-sized enterprises (MSMEs), with women expected to account for at least 50 per cent of beneficiaries and youth 30 per cent.
The mechanism brings together $180 million in lending capital and about $20 million in technical assistance. The lending capital is expected to revolve through roughly four investment cycles, potentially generating about $266 million in loans for farmers and rural businesses across the region’s food systems.
A key feature of the initiative is Equity Group’s commitment to put its own money alongside concessional development finance.
Of the $180 million lending base, $90 million will come from Equity Group’s balance sheet, matching the concessional contribution on a one-for-one basis. The financing will also use a layered risk-sharing structure, with international financing partners covering the first-loss portion, sharing a mezzanine layer with the bank, while Equity assumes the senior risk.
The approach is intended to make climate adaptation lending more attractive to financial institutions while reducing the risks associated with financing rural borrowers.
IFAD Vice President Dr. Gérardine Mukeshimana said the initiative is aimed at turning international climate finance commitments into investments that directly reach rural communities.
“ARCAFIM’s ambition is to make rural climate adaptation a recognizable, viable and sustainable business line for African financial institutions,” Mukeshimana said.
The financing 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.
The programme’s technical assistance component will also help microfinance institutions and savings and credit cooperative organizations (SACCOs) develop the capacity to originate climate adaptation loans.
Farmers and rural enterprises will receive technical support to identify investments that can protect their businesses and livelihoods from climate-related risks.
Equity Group Managing Director and Chief Executive Officer James Mwangi said the initiative was designed to change how financial institutions view smallholder farmers, who often face difficulties accessing affordable financing because of the risks associated with agriculture.
“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.
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 programme is expected to strengthen food security for about 1.2 million people and benefit an estimated 1.5 million people directly and indirectly.
The initiative is backed by several international climate and development finance partners, including the Green Climate Fund (GCF), the Ministry for Foreign Affairs of Finland, the Nordic Development Fund, the Government of Denmark and the European Union.
The GCF is committing $55 million to the mechanism, while Finland is providing a $30 million returnable capital contribution.
GCF Africa Region Director Catherine Koffman said the programme demonstrates how concessional climate finance can be used to mobilize commercial capital for climate-resilient agriculture.
For the participating financial institutions, the ultimate test of ARCAFIM will be whether climate adaptation lending can continue as a normal commercial activity after the concessional capital has been deployed.
IFAD and Equity say the mechanism has therefore been designed to build the systems, expertise and confidence needed for financial institutions to continue offering adaptation finance beyond the programme.
The partners also intend to use lessons from East Africa to develop similar blended-finance approaches in other parts of the continent.
Southern and West Africa have been identified as potential next regions for replication of the model. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
