The International Fund for Agricultural Development (IFAD) and Equity Group have launched a US$200 million financing mechanism to expand access to climate adaptation finance for smallholder farmers and rural businesses across East Africa.The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM), launched during the Africa Food Systems Forum 2026 in Kigali, Rwanda, is expected to reach approximately 260,000 smallholder producers and 500 rural micro, small and medium-sized enterprises (MSMEs) in Kenya, Uganda, Tanzania and Rwanda over 12 years.The initiative seeks to address a persistent challenge in agricultural finance: ensuring that climate-related funding reaches the farmers and rural enterprises that need it to protect their livelihoods, improve productivity and withstand the effects of climate change.ARCAFIM is structured around US$180 million in lending capital and approximately US$20 million in technical assistance. The lending capital is expected to revolve through roughly four investment cycles, generating about US$266 million in loans to smallholder farmers and rural MSMEs across East Africa’s food systems.A key feature of the mechanism is Equity Group’s commitment to match the concessional lending capital with US$90 million from its own balance sheet. This means the commercial bank will share the risk alongside public and development-finance partners rather than simply administering concessional funds.The mechanism is convened with the co-financiers of the Green Climate Fund (GCF), the Ministry for Foreign Affairs of Finland and the Nordic Development Fund, and is also co-financed by the Government of Denmark and the European Union.Financing climate resilience as a businessThe programme is designed to make climate adaptation lending a sustainable business line for African financial institutions beyond the period of concessional financing.Its lending structure includes first-loss protection provided by international financing partners, a mezzanine layer shared with Equity Group and senior risk carried by the bank. This risk-sharing arrangement is intended to encourage greater private-sector participation in financing climate-resilient agriculture.The initiative will also use a climate change adaptation taxonomy to help participating financial institutions identify and finance viable adaptation investments. These include irrigation and water harvesting, dairy and livestock resilience, post-harvest storage, renewable energy and climate-resilient agro-processing.Dr. Gérardine Mukeshimana, Vice President of IFAD, said the success of climate adaptation finance would depend on its ability to translate global commitments into practical investments in rural communities.“ARCAFIM’s ambition is to make rural climate adaptation a recognizable, viable and sustainable business line for African financial institutions,” Mukeshimana said.She added that the mechanism would support tailored financial products and provide participating institutions with the experience, systems and confidence to expand adaptation finance. Although it is starting in East Africa, she said the model was designed to be adapted and replicated across Africa.The technical assistance component will support microfinance institutions and SACCOs to originate adaptation lending, while helping farmers and rural enterprises identify investments that can protect their businesses against climate-related risks.Equity to finance farmers and rural enterprisesDr. James Mwangi, Group Managing Director and Chief Executive Officer of Equity Group Holdings Plc, said the mechanism would 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 said Equity Group’s decision to commit its own balance sheet alongside concessional capital was intended to build a market in which financing climate resilience becomes an ordinary banking business rather than an act of charity.“If we prove this in East Africa, the model belongs to the whole continent,” he said.Moses Nyabanda, Managing Director of Equity Bank Kenya Limited, said the bank would finance smallholder farmers and agricultural producers directly and through microfinance institutions, SACCOs and value-chain companies.The bank will also extend financing to rural MSMEs, build capacity in 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,” Nyabanda said.Focus on women, youth and food securityARCAFIM aims to ensure that at least 50 per cent of its intended beneficiaries are women and 30 per cent are youth.The programme is expected to strengthen food security for approximately 1.2 million people and benefit an estimated 1.5 million people directly and indirectly.Catherine Koffman, Director of the Department of Africa Region at the Green Climate Fund, said the initiative demonstrated the catalytic role of climate finance in mobilising commercial investment.“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,” Koffman said.Juha Savolainen, Director General at Finland’s Ministry for Foreign Affairs, said public-private collaboration could unlock financing for sustainable investments while strengthening the resilience of agriculture to climate change.Nordic Development Fund Managing Director Satu Santala said the fund’s support for ARCAFIM from its inception reflected the importance of building mechanisms capable of unlocking greater investment in climate adaptation.“ARCAFIM demonstrates how innovation, partnerships, risk-sharing, and catalytic finance can help accelerate climate adaptation where it is needed most,” Santala said.A model for wider African expansionThe launch brought together representatives of IFAD and the financing institutions, government representatives from Kenya, Uganda, Tanzania and Rwanda, private-sector investors, development partners and climate finance institutions.The agreements were signed by Mukeshimana for IFAD and Nyabanda for Equity Bank Kenya in a ceremony presided over by Hannington Namara, Managing Director of Equity Bank Rwanda.The post IFAD, Equity Group launch US$200m climate adaptation finance mechanism for East African farmers appeared first on The Insider.