Kigali, Rwanda—Access to climate adaptation finance remains one of the most persistent barriers for smallholder farmers and rural businesses across Africa. Despite the continent’s vast agricultural potential and growing recognition of climate risks, available capital consistently fails to reach those who need it most—leaving millions of farming families exposed to the escalating impacts of drought, flooding, and unpredictable weather patterns.
According to the Climate Policy Initiative, Africa receives only about 3% of global climate finance, despite being the continent most vulnerable to climate change. This financing gap is particularly acute for smallholder farmers, who produce up to 70% of Africa’s food supply but lack access to the capital needed to invest in climate-resilient technologies and practices.
To help bridge this gap, the International Fund for Agricultural Development (IFAD) and Equity Group have launched the Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM)—a US$200 million private sector-led initiative designed to fundamentally transform how climate resilience is financed across East Africa.
The mechanism was unveiled at the Africa Food Systems Forum 2026 in Kigali, Rwanda, with co-financiers including the Green Climate Fund (GCF), the Ministry for Foreign Affairs of Finland, the Nordic Development Fund (NDF), the Government of Denmark , and the European Union. ARCAFIM represents a fundamental shift in approach: rather than treating climate finance as aid, it positions climate-resilient lending as a sustainable commercial activity for African financial institutions.
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.
A Mechanism Built for Scale and Permanence
ARCAFIM runs for twelve years and is structured in two parts: US$180 million in lending capital** and approximately **US$20 million in technical assistance. The lending capital is expected to revolve over roughly four investment cycles, generating approximately US$266 million in loans to micro, small and medium-sized enterprises (MSMEs) and smallholder farmers across East Africa’s food systems.
The programme will operate in Kenya, Uganda, Tanzania and Rwanda—four countries that collectively represent a significant portion of East Africa’s agricultural output and are facing increasing climate pressures. The mechanism aims to provide financing to approximately 260,000 smallholder producers and 500 rural MSMEs.
At least 50 per cent of beneficiaries will be women and 30 percent youth—recognizing that women are disproportionately affected by climate change yet often excluded from formal financial systems. 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.
| Metric | Target |
|---|---|
| Smallholder producers | 260,000 |
| Rural MSMEs | 500 |
| Women beneficiaries | At least 50% |
| Youth beneficiaries | At least 30% |
| Food security strengthened. | ~1.2 million people |
| Total direct/indirect beneficiaries | ~1.5 million people |
A Risk-Sharing Model That Works
What distinguishes ARCAFIM is its innovative risk-sharing structure—a departure from traditional development finance approaches. 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 tranched across the portfolio in a layered approach:
- International financing partners cover a first-loss layer
- A mezzanine layer is shared with the bank
- The bank carries the senior risk
This structure ensures that a commercial bank is carrying the risk alongside public capital rather than simply administering it. It also creates a powerful incentive for the bank to ensure the success of the lending program, as its own capital is at stake.
For financial institutions, this risk-sharing approach addresses a fundamental barrier: the perception that lending to smallholder farmers and rural businesses is inherently too risky. By absorbing the first-loss layer, concessional capital acts as a buffer that enables commercial banks to enter a market they would otherwise avoid.
The model builds on lessons learned from previous blended finance initiatives. According to IFAD, projects with private sector participation generate income gains of over 64% – four times greater than those without the private sector.
Technical Assistance: Building Capacity from the Ground Up
The technical assistance component is not an add-on but part of the financial architecture. Approximately US$20 million is dedicated to building the capacity of participating microfinance institutions and SACCOs to originate adaptation lending and giving farmers and rural enterprises the technical knowledge to identify which investments will actually protect them.
This capacity building is critical because climate adaptation finance requires specialized knowledge that many financial institutions lack. Lenders need to understand climate risks, assess adaptation investments, and structure products that meet the needs of rural borrowers.
The financing will support climate adaptation investments in:
- Irrigation and water harvesting—enabling farmers to cope with erratic rainfall
- Dairy and livestock resilience—improving animal health and productivity
- Post-harvest storage—reducing losses and improving food security
- Renewable energy—powering productive activities and reducing emissions
- Climate-resilient agro-processing—adding value while building resilience
A detailed climate change adaptation taxonomy ensures critical knowledge transfer of viable climate adaptation investment options to participating financial institutions, smallholder farmers, and agribusinesses. This taxonomy helps financial institutions identify and assess adaptation investments, building the expertise needed to continue expanding climate finance beyond the program’s duration.
The taxonomy serves three key functions:
- Standardization—Creating a common language for adaptation investments
- Risk assessment—Helping lenders evaluate the viability of adaptation projects
- Learning – Building institutional knowledge that persists beyond the program
Voices from the Launch
The launch brought together leaders from across the climate finance ecosystem, each offering perspectives on the significance of ARCAFIM.
Gérardine Mukeshimana, Vice President of IFAD, emphasized the program’s transformative ambition:
“ARCAFIM’s ambition is to make rural climate adaptation a recognizable, viable, and sustainable business line for African financial institutions. 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 is starting in East Africa, but it is designed to be adapted and replicated across Africa.”
Dr. James Mwangi, Group Managing Director and CEO of Equity Group Holdings Plc, explained the philosophy behind the bank’s commitment:
“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. By committing our own balance sheet alongside concessional capital, we are not funding a project — we are building a market, one 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.”
Moses Nyabanda, Managing Director of Equity Bank Kenya Limited, outlined the bank’s direct role:
“Through ARCAFIM, we will finance smallholder farmers and agricultural producers directly and through microfinance institutions, SACCOs and value chain companies, while extending financing to rural MSMEs. We will also build capacity on climate adaptation finance and promote 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.”
Catherine Koffman, Director of the Department of Africa Region at the Green Climate Fund, highlighted the catalytic role of public finance:
“ARCAFIM is an important example of GCF’s catalytic role in bringing partners and capital together to scale up investment in climate-resilient agriculture. 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 and expands access to adaptation finance for smallholder farmers and rural businesses across East Africa.”
Juha Savolainen, Director General at the Ministry for Foreign Affairs of Finland, noted:
“Mobilizing private capital for sustainable development is central to Finland’s development policy. ARCAFIM demonstrates how public-private collaboration can unlock financing for sustainable investments and channel capital to where it is needed most. Strengthening the resilience of agriculture to climate change is a smart investment that benefits both communities and businesses.”
Satu Santala, Managing Director of the Nordic Development Fund, added:
“NDF is pleased to have supported ARCAFIM from the very beginning, helping lay the foundations for a mechanism that can unlock greater investments in climate adaptation. Together with our Nordic and international partners, we are proud to reduce investment risk and mobilise financing for smallholder farmers and rural MSMEs.”
A Model for the Continent
IFAD and Equity Group have identified Southern and West Africa as the next candidate regions for expansion, with the initiative expected to generate practical lessons that can inform the replication of blended climate finance approaches in other regions facing similar challenges.
The success of ARCAFIM will be measured not only by the number of farmers reached but by whether the model can be adapted and scaled across the continent. The mechanism is designed to demonstrate how blended climate finance can support sustainable private lending across agricultural value chains, creating a blueprint for other markets seeking to finance climate resilience.
Signing Ceremony
The agreements were signed 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. The launch brought together representatives from IFAD and financing institutions, alongside government representatives from Kenya, Uganda, Tanzania, and Rwanda, private-sector investors, development partners, and climate finance institutions.
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