IFAD launches innovative financing mechanism to support small-scale food producers to adapt to climate change in Eastern Africa

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IFAD launches innovative financing mechanism to support small-scale food producers to adapt to climate change in Eastern Africa

© IFAD/Jjumba Martin

Dubai, 2 December 2023 - Following the recent release of data confirming a sharp global decline in climate finance dedicated to adaptation efforts, the UN’s International Fund for Agricultural Development (IFAD) and partners have today unveiled a new financing mechanism to boost support to small-scale food producers in rural communities in Kenya, Rwanda, Tanzania and Uganda to adapt to a changing climate.

The Africa Rural Climate Adaptation Finance Mechanism (ARCAFIM) is a large-scale model of tailored finance for poor small-scale food producers and rural microenterprises. Small and medium-sized rural agribusinesses will also access concessional loans through this new scheme. The mechanism is scalable and can be replicated in other countries and regions.

“We need to invest at speed and scale to ensure rural populations, including rural small scale food producers, are able to adapt to climate impacts now,” said Alvaro Lario, President of IFAD, at ARCAFIM’S launch event at the climate change conference (COP 28). Lario emphasized IFAD’s commitment to making a positive impact on people's lives through innovative financial solutions such as ARCAFIM, bringing together funding from like-minded partners, and leveraging collaboration with the private sector.

Access to finance is essential to sustain and improve the agricultural livelihoods that vulnerable rural communities rely upon. Strengthening their resilience to climate change has become urgent. Supporting small and medium-sized enterprises in rural areas in turn supports increased employment, income, and services to rural communities.

ARCAFIM aims to contribute to reducing poverty and hunger in Eastern Africa. It seeks to make agriculture more sustainable and profitable, while enhancing rural communities’ capacity to withstand a variety of climate and economic shocks. The mechanism will leverage potential linkages within IFAD's existing portfolio of projects in the region.

Pioneering climate change adaptation financing through private sector

ARCAFIM integrates blended finance and incentivises private sector participation through a risk-sharing mechanism. Equity Bank Kenya and its affiliates in Rwanda, Tanzania and Uganda (subsidiaries of Equity Group Holdings) will contribute US$90 million. IFAD will channel an additional US$90 million, with funding from Finland, the Green Climate Fund (GCF), and the Nordic Development Fund (NDF). The total US$180 million will be devoted to climate change adaptation loans. In addition, US$20 million will be mobilized from partners including Denmark and GCF to provide technical assistance to boost the market's capacity to provide climate adaptation finance.

"We are pleased to have the Equity Group as our implementing partner. Equity is a well-established private bank in East Africa with a strong capacity for rural lending. And they are committed to expanding climate adaptation finance, which is what ARCAFIM aims to do to trigger a systemic change in climate change adaptation financing to reduce poverty and hunger in Eastern Africa," said Lario. He also expressed gratitude for the collaboration with the Nordic countries, highlighting their global reputation for climate finance innovations.

The event launching the finance mechanism was moderated by Dr. Jyotsna Puri (Jo), Associate Vice-President, Strategy and Knowledge Department at IFAD. Carla Montesi, Director for the Green Deal and Digital Agenda at the Directorate-General for International Partnerships, European Commission; James Mwangi, Group Managing Director and CEO, Equity Group Holdings; Karin Isaksson, Managing Director, Nordic Development Fund (NDF); Lilian Macharia , Director of Portfolio Management, Green Climate Fund (GCF); Ole Thonke, Undersecretary of Development Policy Ministry of Foreign Affairs, Government of Denmark; and Ville Tavio, Minister of Foreign Trade and Development, Government of Finland, also participated at the event.

Press release No.: IFAD/117/2023

IFAD is an international financial institution and a United Nations specialized agency. Based in Rome – the United Nations food and agriculture hub – IFAD invests in rural people, empowering them to reduce poverty, increase food security, improve nutrition and strengthen resilience. Since 1978, we have provided more than US$24 billion in grants and low-interest loans to fund projects in developing countries

A wide range of photographs and broadcast-quality video content of IFAD’s work in rural communities are available for download from our Image Bank.