The International Fund for Agricultural Development and Kenya’s Equity Group have launched a $200 million mechanism to route climate adaptation finance to smallholder farmers in East Africa, timed to land alongside food security discussions at the UN General Assembly’s high-level week in New York.
The scheme, known as ARCAFIM, combines $180 million in lending capital with roughly $20 million in technical assistance. It is expected to generate around $266 million in loans across four investment cycles, once repayments are recycled back into the fund. Backers include the Green Climate Fund, which has committed $55 million, and Finland, which has pledged $30 million in returnable capital. Denmark and the European Union are also co-financing the mechanism, while Equity Group is matching the concessional contributions with $90 million of its own balance sheet.
Credit risk is shared, not simply subsidised
Rather than handing out grants, the mechanism is structured to share credit risk between international partners and the bank. International partners absorb first losses, a mezzanine layer of risk is shared with Equity Bank, and the bank itself carries the senior tranche. The design is meant to demonstrate that lending to smallholder farmers coping with drought, floods and erratic rainfall can be commercially viable rather than a permanent drain on donor budgets.
“ARCAFIM’s ambition is to make rural climate adaptation a recognisable, viable and sustainable business line for African financial institutions,” said Gérardine Mukeshimana, IFAD’s vice-president, when the mechanism was announced on 4 September. Equity Group’s chief executive, James Mwangi, framed the initiative in similar terms: “Africa’s smallholder farmers are not waiting to be rescued… dignity begins with being seen as bankable.”
Kenya, Uganda, Tanzania and Rwanda targeted first
The mechanism will roll out first in Kenya, Uganda, Tanzania and Rwanda, targeting around 260,000 smallholder producers and 500 rural micro, small and medium enterprises. IFAD and Equity Group have set a target of at least half of beneficiaries being women and 30 percent being young people, with the initiative expected to reach 1.2 million people through improved food security and roughly 1.5 million when indirect beneficiaries are included.
Moses Nyabanda, managing director of Equity Bank Kenya, said the goal was straightforward: “to enable farmers and agricultural businesses to adapt, increase production, grow revenues and incomes.” The mechanism reflects a wider shift among development finance institutions toward blended finance structures that draw private capital into climate adaptation, an area that has historically attracted a fraction of the funding directed at mitigation projects such as renewable energy.
Timed to UNGA’s climate and hunger agenda
The launch lands as UN Secretary-General António Guterres prepares to convene a High-Level Event on Climate Action and the Just Transition during UNGA81’s high-level week, and as food security bodies including the World Food Programme press governments for greater climate finance for agriculture. African delegations at the General Assembly have repeatedly argued that adaptation finance, rather than mitigation pledges, is what determines whether smallholder farming communities can withstand increasingly erratic seasons.
For East African farmers already absorbing the costs of failed rains and flash flooding, the test of ARCAFIM will be less about the size of the headline figure than about how quickly the credit reaches the ground, and whether a commercial lending model can survive seasons when climate shocks make repayment genuinely difficult.
Development finance institutions have watched blended mechanisms like ARCAFIM closely as a possible template for other regions, since traditional grant-based adaptation funding has struggled to scale fast enough to match the pace of climate impacts. If the Kenya, Uganda, Tanzania and Rwanda rollout demonstrates that repayment rates hold up even through difficult seasons, IFAD and Equity Group have both signalled interest in extending the model to additional countries and financial partners in subsequent investment cycles.
