KIGALI – Access to climate adaptation finance remains a significant challenge for smallholder farmers and rural businesses across Africa, with available capital often failing to reach those who need it most.
To help bridge this financing and delivery gap, the International Fund for Agricultural Development (IFAD) and Equity Group today kicked off the Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) – a US$200 million, private sector-led mechanism.
The mechanism, built to close that gap for smallholder farmers and rural businesses across East Africa, was launched at the Africa Food Systems Forum 2026 in Kigali.
ARCAFIM is convened with the co-financiers of the Green Climate Fund, the Ministry for Foreign Affairs of Finland and the Nordic Development Fund and also co-financed by the Government of Denmark and the European Union.
The mechanism runs for twelve years and is structured in two parts: US$180 million of lending capital and approximately US$20 million of technical assistance.
Delegates during the launch of the Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM).
Because the lending capital revolves over roughly four investment cycles, it is expected to generate in the order of US$266 million in loans to micro, small and medium-sized enterprises (MSMEs) and smallholder farmers across East Africa’s food systems.
What distinguishes ARCAFIM is a detailed climate change adaptation taxonomy ensuring critical knowledge transfer of viable climate adaptation investment options to participating financial institutions and smallholder farmers and agro-businesses.
Of the US$180 million lending base, US$90 million comes from Equity Group’s own balance sheet, matching the concessional contribution one for one.
Credit protection is trenched across the portfolio, with international financing partners covering a first-loss layer, a mezzanine layer shared with the bank, and the bank carrying the senior risk.
The program will operate in Kenya, Uganda, Tanzania and Rwanda, with the ambition of providing financing to approximately 260,000 smallholder producers and 500 rural MSMEs. At least 50 per cent of the intended beneficiaries will be women and 30 per cent youth.
The initiative is expected to strengthen food security for approximately 1.2 million people and to benefit an estimated 1.5 million people in total, directly and indirectly, while helping rural communities and businesses invest in measures that enable them to better withstand the effects of climate change.
The measure of success is commercial permanence. ARCAFIM is designed so that lending for climate resilience survives as an ordinary business line for African financial institutions long after the concessional capital has been spent.
Speaking during the launch, Gérardine Mukeshimana, Vice President IFAD, said the success of climate adaptation finance will ultimately depend on its ability to translate global commitments into tangible investments in rural communities.
“ARCAFIM’s ambition is to make rural climate adaptation a recognizable, viable and sustainable business line for African financial institutions. The mechanism is starting in East Africa, but it is designed to be adapted and replicated across Africa,” she said.
She added that 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 builds the capacity of participating microfinance institutions and SACCOs to originate adaptation lending and gives farmers and rural enterprises the technical knowledge to identify which investments will actually protect them.
The investments include irrigation and water harvesting, dairy and livestock resilience, post-harvest storage, renewable energy, and climate-resilient agro-processing.
On his part, Dr. James Mwangi, Group Managing Director and Chief Executive Officer of Equity Group Holdings Plc, 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,” Mwangi said.
He explained that committing the bank’s own balance sheet alongside concessional capital, his institution building a market 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 Mwangi emphasized.
Moses Nyabanda, Managing Director of Equity Bank Kenya Limited, said the bank will play a direct role in translating climate adaptation finance into practical investments for farmers and agricultural value chain businesses.
“We will finance smallholder farmers and agricultural producers directly and through microfinance institutions, SACCOs and value chain companies, while extending financing to rural MSMEs,” he said.
According to him, capacity on climate adaptation finance will be built as a way of promoting sustainable agricultural practices and technologies.
The goal, he said, is to enable farmers and agricultural businesses to adapt, increase production, grow revenues and incomes, and become more resilient to the effects of climate change.
“This 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,” said Catherine Koffman, Director of the Department of Africa Region at the Green Climate Fund.
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 across East Africa.
“Mobilizing private capital for sustainable development is central to Finland’s development policy. And this demonstrates how public-private collaboration can unlock financing for sustainable investments and channel capital to where it is needed most,” said Juha Savolainen, Director General at the Ministry for Foreign Affairs of Finland.
Savolainen explained that strengthening the resilience of agriculture to climate change is a smart investment that benefits both communities and businesses. He said it increases productivity and incomes for smallholder farmers while reducing the risks associated with agricultural finance.
Nordic Development Fund (NDF) Managing Director, Satu Santala, said the fund’s support for ARCAFIM from its inception reflected the importance of building mechanisms capable of unlocking greater investment in climate adaptation.
“We are pleased to have participated in laying the foundations for a mechanism that can unlock greater investments in climate adaptation. Together with our partners, we are proud to reduce investment risk and mobilise financing for smallholder farmers and rural MSMEs,” said Santala.
ARCAFIM demonstrates how innovation, partnerships, risk-sharing, and catalytic finance can help accelerate climate adaptation where it is needed most.
The launch culminated with the signing of agreements by Gérardine Mukeshimana for IFAD and Moses Nyabanda for Equity Bank Kenya, in a ceremony presided over by Hannington Namara, Managing Director of Equity Bank Rwanda.
By strengthening financial intermediation and private lending channels across agricultural value chains, ARCAFIM seeks to demonstrate how climate adaptation finance can become a sustainable business line while improving access to finance for underserved rural communities.
The initiative also seeks to generate practical lessons that can inform the replication of blended climate finance approaches in other continental regions facing similar challenges in financing climate resilience.
IFAD and Equity Group have identified Southern and Western Africa as the next candidate regions.
