Ugandan farmers and rural businesses are among the beneficiaries targeted by a new US$200 million (about Shs700 billion) climate adaptation financing mechanism launched by the International Fund for Agricultural Development (IFAD) and Equity Group.
The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM), launched at the Africa Food Systems Forum 2026 in Kigali, will provide financing to smallholder farmers and rural micro, small and medium-sized enterprises (MSMEs) across Uganda, Kenya, Tanzania and Rwanda.
The 12-year initiative aims to reach about 260,000 smallholder producers and 500 rural enterprises, with women expected to account for at least 50% of the beneficiaries and young people 30%.
For Uganda, the facility could open another avenue of financing for farmers and agricultural businesses seeking to invest in infrastructure and technologies that can protect production from climate-related shocks.
Financing climate resilience
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, potentially generating about US$266 million in loans to smallholder farmers and MSMEs involved in East Africa’s food systems.
The financing will target investments such as irrigation and water harvesting, resilient dairy and livestock production, post-harvest storage, renewable energy and climate-resilient agro-processing.
This is particularly significant for agricultural economies such as Uganda, where farmers and rural enterprises depend heavily on weather-sensitive production but often face difficulty accessing affordable financing for longer-term investments.
The mechanism’s technical assistance component will also support microfinance institutions and SACCOs to develop the capacity to originate climate adaptation loans and help farmers identify investments that can strengthen their resilience.
Equity puts its own money on the line
One of the distinguishing features of ARCAFIM is the participation of Equity Group’s own balance sheet.
Of the US$180 million lending base, US$90 million will come from Equity Group, matching the concessional contribution on a one-for-one basis.
The programme also uses a layered risk-sharing structure in which international financing partners take a first-loss position, while a mezzanine layer is shared with the bank and Equity carries the senior risk.
The structure is intended to address one of the major barriers to climate finance: the perceived risk of lending to smallholder farmers and rural businesses.
Rather than treating climate adaptation as a donor-funded intervention, the partners want it to become part of the normal business of financial institutions.
Dr James Mwangi, Equity Group Managing Director and Chief Executive Officer, said the model was designed to change how financial institutions view rural borrowers.
“Africa’s smallholder farmers are not waiting to be rescued. They are entrepreneurs operating in the most demanding risk environment on earth,” Mwangi said.
He said Equity’s decision to commit its own balance sheet alongside concessional capital was aimed at building a market in which financing climate resilience becomes an ordinary banking business.
What it could mean for Uganda
The inclusion of Uganda in the four-country programme gives local agricultural producers access to a financing mechanism specifically designed around investments that reduce exposure to climate risks.
The programme is expected to strengthen food security for about 1.2 million people and benefit an estimated 1.5 million people directly and indirectly across the region.
For rural enterprises, the financing could support investments beyond primary production, including agro-processing, storage and renewable energy.
This creates the potential for climate finance to reach different points of the agricultural value chain rather than being restricted to individual farmers.
The mechanism will also work through financial intermediaries, including microfinance institutions and SACCOs, potentially widening the channels through which rural borrowers can access climate adaptation financing.
Moses Nyabanda, Managing Director of Equity Bank Kenya, said the bank would finance farmers directly as well as through microfinance institutions, SACCOs and value-chain companies.
The objective, he said, is to enable agricultural businesses to adapt, increase production, grow revenues and incomes and become more resilient to climate change.
From concessional finance to commercial lending
The longer-term ambition behind ARCAFIM is arguably more important than the initial US$200 million.
The partners want climate adaptation lending to continue after the concessional capital has been deployed.
The programme therefore measures success by what it describes as “commercial permanence”—whether lending for climate resilience can survive as an ordinary business line for African financial institutions.
IFAD Vice President Dr Gérardine Mukeshimana said the initiative was intended to translate global climate commitments into tangible investments in rural communities.
She said the model would begin in East Africa but could be adapted and replicated elsewhere in Africa.
Private capital joins the climate finance push
The initiative brings together public, private and development finance partners, including the Green Climate Fund (GCF), Finland’s Ministry for Foreign Affairs and the Nordic Development Fund, with co-financing from Denmark and the European Union.
The Green Climate Fund has committed US$55 million to the mechanism.
Catherine Koffman, Director of the Department of Africa Region at the GCF, said the initiative demonstrates how catalytic climate finance can mobilise commercial investment for climate-resilient agriculture.
Finland’s Ministry for Foreign Affairs is also contributing US$30 million in returnable capital to ARCAFIM.
A test case for East Africa
ARCAFIM comes as climate adaptation becomes an increasingly important financing issue for agricultural economies.
For Uganda, the significance will ultimately depend on how effectively the mechanism moves from international commitments and financial structures to actual credit reaching farmers and rural enterprises.
The programme’s design places emphasis not only on providing capital but also on building the capacity of financial institutions and borrowers to identify viable climate adaptation investments.
IFAD and Equity Group said the experience generated in East Africa could eventually be used to develop similar blended-finance mechanisms in other parts of Africa.
Southern and West Africa have already been identified as potential next regions for replication.
