The International Fund for Agricultural Development (IFAD) and Equity Group have launched the Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM), a $200 million private sector-led initiative designed to close the financing gap for smallholder farmers and rural businesses across East Africa.
The twelve-year blended finance mechanism was kicked off at the Africa Food Systems Forum 2026 in Kigali, Rwanda, and will operate in Kenya, Uganda, Tanzania, and Rwanda. It aims to reach approximately 260,000 smallholder producers and 500 rural enterprises, with at least 50% of beneficiaries being women and 30% youth.
ARCAFIM is structured in two parts: $180 million of lending capital and approximately $20 million of technical assistance. Because the lending capital revolves over roughly four investment cycles, it is expected to generate in the order of $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. Of the $180 million lending base, $90 million comes from Equity Group’s own balance sheet, matching the concessional contribution one for one. Credit protection is tranched 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.
Speaking during the launch, Dr. Gérardine Mukeshimana, Vice President of 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. 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,” said Mukeshimana.
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. 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,” said Dr. Mwangi.
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.
“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,” said Nyabanda.
The mechanism is convened with co-financiers including the Green Climate Fund, the Ministry for Foreign Affairs of Finland, and the Nordic Development Fund, and is co-financed by the Government of Denmark and the European Union.
Catherine Koffman, Director of the Department of Africa Region at the Green Climate Fund, noted that ARCAFIM is an important example of GCF’s catalytic role in bringing partners and capital together to scale up investment in climate-resilient agriculture. Juha Savolainen, Director General at the Ministry for Foreign Affairs of Finland, emphasized that mobilizing private capital for sustainable development is central to Finland’s development policy.
Satu Santala, Managing Director of the Nordic Development Fund, said the fund’s support for ARCAFIM from its inception reflected the importance of building mechanisms capable of unlocking greater investment in climate adaptation.
The technical assistance component is part of the financial architecture rather than an add-on. It 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 — irrigation and water harvesting, dairy and livestock resilience, post-harvest storage, renewable energy, and climate-resilient agro-processing.
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. IFAD and Equity Group have identified Southern and West Africa as the next candidate regions for replication.
