The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) (C147)

Objective

Small-scale producers and rural agricultural enterprises are central to jobs, incomes and food systems in East Africa, yet they face significant barriers to financing investments that would help them manage climate risks. Although significant climate finance is available globally, much of it does not reach rural borrowers because of perceived risks, limited lending capacity and a lack of suitable financial products. By combining risk-sharing, commercial co-financing and targeted technical assistance, ARCAFIM seeks to overcome these barriers and make adaptation finance more accessible and affordable for rural borrowers and underserved rural communities in East Africa.

ARCAFIM aims to catalyse and scale up private sector climate adaptation finance to support stronger agricultural value chains, improved rural livelihoods and increased resilience to climate change. Its focus on women and young people responds to the additional barriers these groups often face in accessing finance and productive opportunities. The programme addresses a persistent market failure that prevents small-scale producers and rural enterprises from accessing the financing needed to invest in climate-resilient agricultural practices, technologies and businesses.

ARCAFIM is a private sector-led contribution to the solution, structured by IFAD with Equity Bank Kenya and its banking affiliates in Uganda, Tanzania and Rwanda as implementing partners, and financed by the Green Climate Fund, the Ministry for Foreign Affairs of Finland, the Nordic Development Fund, the Government of Denmark and the European Union. ARCAFIM will deploy up to USD 200 million over a twelve-year implementation period across the four countries.

Outcomes

The programme is expected to provide USD 180 million in adaptation lending across Kenya, Rwanda, Tanzania and Uganda, of which at least 70% of the adaptation lending is expected to be directed to small-scale producers and up to 30% may support rural MSMEs. The lending activities will be complemented by a technical assistance facility of USD 20 million. ARCAFIM places particular emphasis on inclusion, with targets of 50% women and 30% young people among beneficiaries. During its implementation, the programme is expected to reach approximately 260,000 small-scale producers and 500 rural MSMEs.

Beyond expanding access to finance, ARCAFIM seeks to demonstrate that climate adaptation lending can become a sustainable commercial business line for financial institutions. The programme is intended to generate evidence and lessons that can inform possible replication of the model in other regions of Africa.

Financing

NDF is providing USD 16.2 million for the implementation of ARCAFIM.

This contribution builds on NDF early-stage support through a EUR 500,000 Booster Grant to the programme’s design, structuring and preparation together with IFAD. The follow-up project represents the transition from programme development to implementation of the East Africa facility.

NDF Contact

Program Manager, Morten Holm van Donk (morten.vandonk@ndf.int)