Equity Bank Kenya Managing Director, Moses Nyabanda, and Dr Gérardine Mukeshimana, IFAD Vice President, during the signing ceremony of the Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) in Kigali, on the sidelines of the Africa Food Systems Forum 2026./HANDOUT
Smallholder farmers and rural businesses across East Africa are set to gain access to more climate adaptation financing under a new Sh25.9 billion ($200 million) initiative launched by the International Fund for Agricultural Development (IFAD) and Equity Group.
The 12-year Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) will operate in Kenya, Uganda, Tanzania and Rwanda, targeting about 260,000 smallholder producers and 500 rural micro, small and medium-sized enterprises.
The initiative was launched in Kigali, Rwanda, on Tuesday during the Africa Food Systems Forum 2026, as development finance institutions and private capital providers seek to close a persistent gap in funding for climate resilience.
ARCAFIM comprises about Sh23.3 billion ($180 million) in lending capital and Sh2.6 billion ($20 million) in technical assistance. Equity Group will provide half of the lending capital from its own balance sheet, matching the concessional contribution on a one-for-one basis.
The lending capital is expected to revolve through about four investment cycles, generating approximately Sh34.5 billion ($266 million) in loans to farmers and rural enterprises across East Africa's food systems.
The financing will support investments designed to help farmers withstand climate shocks, including irrigation and water harvesting, resilient dairy and livestock production, post-harvest storage, renewable energy and climate-resilient agro-processing.
At least 50 per cent of the intended beneficiaries will be women, while 30 per cent will be young people. The initiative is expected to strengthen food security for about 1.2 million people and benefit an estimated 1.5 million people directly and indirectly.
IFAD Vice President Dr Gérardine Mukeshimana said the initiative is designed to turn climate adaptation financing into a sustainable business line for African financial institutions.
“ARCAFIM’s ambition is to make rural climate adaptation a recognisable, 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,” Dr Mukeshimana said.
She said ARCAFIM would provide financial institutions with the products, systems and knowledge needed to continue expanding climate adaptation finance beyond the period of concessional funding.
Equity Group Managing Director and CEO Dr James Mwangi said the mechanism would change how financial institutions view smallholder farmers by treating them as entrepreneurs and bankable borrowers.
“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,” Dr Mwangi said.
“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.”
The mechanism uses a risk-sharing structure in which international financing partners provide first-loss protection, while a mezzanine layer is shared with the bank, and Equity carries the senior risk.
This structure is intended to encourage commercial lending to farmers and rural enterprises that may otherwise struggle to access financing because of the risks associated with climate-dependent agriculture.
Equity Bank Kenya Managing Director Moses Nyabanda said the bank would finance farmers both directly and through microfinance institutions, SACCOs and agricultural value-chain companies.
“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,” Mr Nyabanda said.
“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.”
The programme's technical assistance component will also build the capacity of microfinance institutions and savings and credit co-operative societies to originate climate adaptation loans. Farmers and rural enterprises will receive technical support to identify investments that can improve their resilience and productivity.
The initiative is backed by a group of development partners, including the Green Climate Fund, which has committed $55 million, Finland, the Nordic Development Fund; Denmark; and the European Union.
Unlike conventional project-based climate finance, ARCAFIM is designed with commercial permanence as a key measure of success. The partners want climate adaptation lending to continue as an ordinary business line for African financial institutions after the concessional capital has been deployed.
IFAD and Equity Group said lessons from the East African programme could eventually support similar mechanisms in other parts of Africa, with Southern and West Africa identified as potential next regions for replication.
