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

East Africa is frequently impacted by food shortages and clusters of hunger due to complex mix of factors including unstable social and political environments, macroeconomic imbalances in trade and climate change.

Floods, pests, diseases are just a number of challenges hindering farmers in East Africa who rely on rainfed agriculture.

Not only these farmers are significantly limited by their marginalized conditions but also their lower capacity to adapt.

Climate change is another problem the world and this case Africa faces. It impacts the way struggling farmers navigate through crop failure and profitable market limitation.

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 unveiled a new financing mechanism to boost support to climate-resilient farmers 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 climate-resilient farmers and rural microenterprises. Small and medium-sized rural agribusinesses can access concessional loans through this new scheme. The mechanism is scalable and can be replicated in other countries and regions.

Climate-resilient farmers adapting to climate impacts

“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 positively impacting 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 climate-resilient farmers’ 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 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 climate and economic shocks. The mechanism will leverage potential linkages within IFAD’s existing portfolio of regional projects. 

Climate Resilient future in Africa

The World Bank argues that climate change manifest more acutely and urgently than in African agriculture

At least 250 million small-scale African farmers, who operate on plots smaller than one hectare, play a crucial role in sustaining the continent’s food supply by producing approximately 70 percent of it.

For instance, the World Food Programme (WFP) pointed out that, despite Uganda regarded as Africa’s breadbasket, it still faces a multipronged challenge in eradicating hunger. Unfortunately, floods that occurred earlier this year, coupled by prolonged drought placed more stress on food security.

However, several resilience and adaptation measures are employed across East Africa by rural farmers to address the challenges posed by climate change. The latter includes crop diversification, water harvesting and management, livestock management, and community-based adaptation.

Ripple effects of resilient farming

More importantly, the latter goes hand in hand with stabilizing the region’s agrifood systems that impact the price of food.

A study by the Food and Agriculture Organisation (FAO) in the latest annual State of Food and Agriculture report reveals that every year, Africa incurs or loses $952.5 billion (of which eastern Africa suffers the highest at $264.9 billion) on issues directly linked to agricultural production to feed the globe.

According to the report, East Africa has the highest hidden costs, totaling $264.9 billion, more than half of which is attributed to agrifood worker poverty.

On the other end, Ethiopia incurs the highest of these ‘hidden costs’, estimated at $51 billion every year, most of which results from the failure of agriculture to enrich its workers, hence productivity losses.

Further down the line, Tanzania is the next largest victim, incurring $47 billion on unseen expenses resulting from food agrifood systems, and just like Addis, most of the losses are linked to worker poverty.

Meanwhile, the report pointed out that, Kenya loses $26.8 billion every year to food production and consumption unseen costs, but unlike other countries in the region, the highest is due to the burden of disease due to unhealthy dietary patterns, which costs Nairobi $11.8 billion annually, the study shows.

Uganda, South Sudan, and Rwanda also lose significantly, with their hidden agrifoods cost at $22.6 billion, $10 billion, and $5.3 billion respectively.

Read also: Small-scale farmers hit hard by 44 per cent decline in climate finance flows

Pioneering climate change adaptation financing through the 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 $90 million.

IFAD will channel an additional $90 million, with funding from Finland, the Green Climate Fund (GCF), and the Nordic Development Fund (NDF). A total of $180 million will be devoted to climate change adaptation loans. In addition, $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 collaborating 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.