A $200 million financing mechanism targeting smallholder farmers and rural businesses in East Africa has been launched to help communities invest in climate-resilient agriculture and overcome one of the biggest barriers to adaptation and limited access to affordable finance.

The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM), launched in Kigali on September 4 during on the sidelines of Africa Food Systems Forum 2026, is expected to provide financing to about 260,000 smallholder producers and 500 rural enterprises in Rwanda, Kenya, Uganda and Tanzania over the next 12 years.

The initiative is being implemented by the International Fund for Agricultural Development (IFAD) and Equity Group, with support from the Green Climate Fund (GCF), the Ministry for Foreign Affairs of Finland, Nordic Development Fund, Denmark and the European Union.

It comes at a time when smallholder farmers and rural businesses face increasing pressure from droughts, floods and other climate-related shocks, while access to financing needed to invest in adaptation remains limited.

ARCAFIM is structured around $180 million in lending capital and about $20 million for technical assistance. The lending capital is expected to revolve through roughly four investment cycles, potentially generating about $266 million in loans to micro, small and medium-sized enterprises (MSMEs) and smallholder farmers, according to the partners.

A key feature of the mechanism is that Equity Group will match the concessional capital with $90 million from its own balance sheet.

The risk will also be shared among the financing partners, with international partners covering a first-loss layer, a mezzanine layer shared with Equity and the bank taking the senior risk.

Unlocking private finance for climate-resilient agriculture

Speaking at the launch, Gérardine Mukeshimana, IFAD Vice President, said climate finance will only have an impact if it reaches rural communities and translates into actual investments.

"ARCAFIM’s ambition is to make rural climate adaptation a recognizable, viable and sustainable business line for African financial institutions,” Mukeshimana said.

The mechanism, stated, would provide financial institutions with the tools, systems and experience needed to expand climate adaptation lending beyond the programme.

"It will support tailored financial products and a climate adaptation financing taxonomy... The mechanism is starting in East Africa, but it is designed to be adapted and replicated across Africa,” she said.

The programme will provide financing for adaptation investments including irrigation and water harvesting, resilient dairy and livestock systems, post-harvest storage, renewable energy and climate-resilient agro-processing.

Technical assistance will also be provided to microfinance institutions and savings and credit cooperative organisations (SACCOs) to improve their capacity to originate adaptation loans.

For farmers and rural businesses, the support is intended to help them identify investments that can protect their livelihoods while improving productivity and incomes.

James Mwangi, Group Managing Director and CEO of Equity Group Holdings, said the initiative is intended to change how financial institutions view smallholder farmers.

"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.

He noted that Equity's decision to commit its own balance sheet alongside concessional financing was aimed at creating a sustainable market for climate-resilient lending.

"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,” he said.

Targeting women and youth

The initiative aims to ensure that women account for at least 50 per cent of beneficiaries, while young people will make up at least 30 per cent.

It is expected to strengthen food security for about 1.2 million people and benefit an estimated 1.5 million people directly and indirectly.

Moses Nyabanda, Managing Director of Equity Bank Kenya, said the bank would provide financing directly to farmers and agricultural producers, as well as through microfinance institutions, SACCOs and value-chain companies.

The bank will also extend financing to rural MSMEs and provide training on climate adaptation finance and sustainable agricultural 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,” Nyabanda said.

Catalysing private investment

Catherine Koffman, Director of Africa Region Department at Green Climate Fund, said ARCAFIM demonstrates how concessional climate finance can be used to mobilise larger volumes of private capital.

The GCF has committed $55 million to the mechanism.

"ARCAFIM is an important example of Green Climate Fund’s catalytic role in bringing partners and capital together to scale up investment in climate-resilient agriculture,” Koffman said.

She said the partnership with IFAD and Equity Group would help expand access to adaptation finance for farmers and rural businesses across East Africa.

Finland's Director General at the Ministry for Foreign Affairs, Juha Savolainen, said mobilising private capital was critical to financing sustainable development.

"Strengthening the resilience of agriculture to climate change is a smart investment that benefits both communities and businesses,” Savolainen said.

Satu Santala, Managing Director of the Nordic Development Fund, said the mechanism could help reduce investment risks while unlocking more financing for climate adaptation.

"ARCAFIM demonstrates how innovation, partnerships, risk-sharing, and catalytic finance can help accelerate climate adaptation where it is needed most,” Santala said.

Opportunity for small businesses

For rural entrepreneurs, the initiative could help address some of the longstanding barriers to accessing agricultural finance, particularly for women and young people.

"The youth and women have been struggling to get loans because they lack collateral or have no historical information of their previous banking in financial institutions,” she said.

She added that lengthy lending procedures can also delay access to financing for businesses that need capital to expand.

"With the launched initiative, we can be able to acquire loans without presenting a collateral and without looking at our previous banking history. This is a good move, and as a young entrepreneur, I am ready to seize this opportunity" she said.

Under ARCAFIM, financing will be channelled through different financial institutions and agricultural value chains, with the aim of reaching underserved borrowers.