Submission to the International Development Committee enquiry on International Climate Finance from Farm Africa.

Farm Africa is an international NGO working in partnership with smallholder farmers and small businesses in east Africa to improve the quality, quantity and value of their produce, so that they can support their families with more resilient livelihoods.

We support farmers to gain access to finance and markets, so that they can strengthen their businesses, increase employment and protect and regenerate the environment.

https://www.farmafrica.org/

This short submission considers the question of: “Whether the financial tools the UK is using to deliver ICF are the right ones, or if there are possible alternatives”

The current international climate finance architecture often struggles to channel timely and effective adaptation support to the most vulnerable communities.

In order to take advantage of the opportunities and solutions presented by Climate Smart Agriculture and other adaptation measures, smallholder farmers and agri SMEs need access to finance. The distance between global climate finance and the farmers who need it, must be reduced.

The amount of global climate finance that currently reaches the smallholder agriculture sector (0.8%) should be increased.

1. Context

The East Africa region is particularly vulnerable to climate change, characterised by multiple incidents of flooding and prolonged droughts periods, rising temperatures and heightened vulnerability across various sectors. At the same time, the region is also one of the most unprepared in responding to climate disasters, due to the weight of escalating external debts, which significantly hampers the region’s capacity to respond effectively to climate change.[1] This is further compounded by the nature and scale of climate finance received by East African countries. For example, in 2021, the region received only $2.4 billion in climate-related development finance – far below the estimated $53.3 billion required annually to meet the region’s 2030 climate targets.[2] Of this, approximately 45% was disbursed as debt, further elevating the debt burden and limiting internal investments in climate resilience sectors such as agriculture.

Projections show profound impacts of climate change impact on the agriculture sector in Kenya. It is estimated that staple crops’ yield is expected to decrease by 12-15%, while food prices are projected to increase by 75-90% by 2055.[3] Moreover, it is projected that climate change will have major implications for maize production, Kenya’s staple crop, with losses estimated at $100-200 million annually by 2050.[4] The livestock sector, critical for pastoral communities in the arid and semi-arid areas of the country, has also been severely affected, with over 2.5 million livestock deaths recorded in 2022, due to drought-related pasture and water scarcity, with estimated losses estimated to exceed $1.5 million.[5] These impacts not only undermine food security but also threaten rural livelihoods and national economic resilience - studies show that the country’s recent drought, the worst in four decades, left 3.5 million people food insecure.[6]

In the face of these challenges, current finance allocations and existing market failures hamper adaptation and resilience efforts. Smallholder farmers, responsible for producing up to 70% of the food in Africa, are disproportionately affected by access to finance.[7] Currently, only 0.8% of global climate finance is directed towards small-scale agri-food systems – a meagre US$5.3 billion per year.[8] IFAD estimates that in order to safeguard food security and smallholder livelihoods a figure of closer to $75 billion per year is required, a 14-fold increase.   This under-investment continues to undermine adaptation and resilience efforts among smallholder farmers, who are on the front lines of climate impacts.

International adaptation finance relies on a handful of international climate funds or multilateral development banks to solve the problem, but these organisations still tend to struggle to get quick, flexible help to the most vulnerable communities. The global climate funds are cumbersome and bureaucratic and they seem to have replicated many of the characteristics and bottlenecks of the international aid system – an inability to channel funding at scale to the communities where it is needed and can be utilised. 

2. Farm Africa’s experience points to two important routes to accessing climate adaptation finance:

2.1 Enhance existing local climate resilience systems

Local civil society, savings groups and credit unions, mutuals, domestic philanthropy, micro-insurance and micro-finance institutions, community social environmental funds and cooperatives are the fundamental fabric of facilitating climate adaptation and addressing loss and damage in communities. But traditional adaptation finance mechanisms tend to ignore these or exclude them by requiring formal and complex accreditation, proposal development and reporting processes.

It is up to national governments, national and local development banks, philanthropies and bilateral donors to show the way by forging new, flexible and efficient partnerships with these structures. For some funding agencies, enabling this will require a much-needed change in strategy, accountability and diligence.

2.2 Nurture adaptation as local business opportunity

Evidence points to growing demand for goods and services within the agri SME sector that bring climate-resilience benefits, creating business opportunities and jobs. Improving support to help local businesses adapt to climate change and exploit the adaptation economy must be a priority for economic development.

The target is to build a dense network of local businesses helping to strengthen adaptation and the domestic economy, but in some cases, there may be an opportunity for businesses to grow and scale up with help from domestic and international impact capital as the number of adaptation impact investors and interested development banks and development finance institutions increases, and international businesses invest more in strengthening the climate resilience of their own supply chains. meanwhile, the cost of big businesses and the impact of businesses keeping their prices low, while meeting international environmental standards, often falls on local producers.

3. Examples from our work that illustrate how access to climate finance can support farming communities to improve resilience and adaptation measures include:

3.1: Farm Africa’s work with the GEF seeks to unlock climate adaptation finance for smallholder farmers by de-risking investments, supporting climate-resilient enterprises, and scaling access to regenerative agricultural technologies through innovative financial mechanisms.

While traditional adaptation finance architecture often fails to reach the most vulnerable communities due to rigid processes, lack of flexibility, and insufficient support for local actors, this project adopts a more flexible, inclusive, and locally empowered approach to ensure finance translates to resilience on the ground. This includes:

• Strengthened climate-smart livelihoods and financial inclusion: The project builds capacity in regenerative agriculture, agroforestry, and soil health, expand last-mile advisory services through community-based structures, and support women- and youth-led agri-enterprises with investment readiness and market access.

• Enhancing access to climate-linked financial services: It will digitise and expand community-based savings groups, co-design climate insurance solutions, and pilot bundled financial products including input packages and micro-grants for community adaptation in selected locations across the three countries. The project’s support to community cooperatives and savings groups reflects growing evidence on the role of local financial ecosystems in delivering adaptation benefits . By anchoring interventions in locally trusted mechanisms, the project enhances both uptake and sustainability.

• This includes addressing financial barriers by establishing and strengthening VSLAs, promoting linkages to existing community financial mechanisms and championing innovative financial instruments for smallholders and agro-enterprises

3.2: Our work in Ethiopia under the Norway funded Forests for Sustainable Development has has supported the establishment of 102 women-only Village Savings and Loan Associations (VSLAs). These community-led groups bring marginalised rural women access to savings and affordable credit, enabling investment in small enterprises, farming and education. In areas underserved by formal banking, VSLAs foster financial inclusion, strengthen resilience and reduce reliance on harmful coping strategies. Members also gain training in budgeting and record-keeping, equipping them to make informed financial decisions and diversify their income sustainably.

• Across the FSD programme area, 2,550 women are getting similar support through their VSLA membership. So far, the 102 established VSLAs have mobilised over  ETB 5.2 million and disbursed ETB 3.2 million as loans to members wishing to engage in enterprise, illustrating how a community-based approach can sow the seeds of broad-scale change and adaptation.

3.3: Farm Africa’s work with Regenerative Farming in Kenya has proven the model for the impact at scale of regenerative agriculture through the Village Based Advisor model, with evidence for increased farm yield and income, and for sustained improvements in soil health. This has direct implications for climate resilience and sustainable smallholder livelihoods. The case for scaled up investment in regenerative agriculture is clear and this should be a target within the UK government ICF strategy.

• Working with 50,000 farmers in eastern Kenya, Farm Africa’s AGRA funded regenerative agriculture project increased smallholder farm yield by up to 80%.

• Soil health markers showed sustained improvements, nematode levels increasing by 200% and micro-fungi (AMF) by 63%.

• Soil organic carbon levels showed xxx improvement over the four year timespan of the programme.