Project: Funding climate adaptation of smallholder farmers using e-vouchers in Kenya
State of development: Current
Stage of development: Late stage
Stage notes: Late-Stage Design
Type of instrument — Impact Bond: No; Outcomes Fund: No; Social Impact Incentives (SIINC): Yes; Social Impact Guarantee: No; Payment-by-results (no pre-financing): No; Technical Assistance and Market-building program: No; Other: 
Rationale for using outcome-based finance: The program introduces several innovations to promote climate adaptation among smallholder farmers, including outcomes-based financing (OBF) and the use of a robust e-voucher system to efficiently deliver resources. These innovations create a results-driven ecosystem, ensuring financial sustainability as repayment is tied to achieved outcomes.

To scale, the project can collaborate with more governments, investors, and service providers through the Outcomes Accelerator, expanding its reach to other regions and farmers. Scaling could also involve diversifying funding sources, engaging impact investors and climate-focused funds.

Regarding cost-effectiveness, OBF encourages service providers to deliver efficient interventions, maximizing the impact of funding. Furthermore, scalability can lead to economies of scale, reducing unit costs as the project expands. These considerations make the project well-positioned for cost-effective and sustainable expansion into a follow-on scale-up phase, amplifying its contribution to climate action and economic growth.
Key challenges to launch: Limited Access to Financing: Smallholder farmers face difficulties accessing traditional financing due to perceived high-risk profiles, hindering climate adaptation initiatives.

Uncertainty for Investors: The lack of robust data and metrics to measure climate adaptation outcomes creates uncertainty for investors, reducing their willingness to fund such projects.

Lack of Tailored Solutions: The absence of tailored financial products and risk-sharing mechanisms discourages investments in climate-smart initiatives.

 Pain points address by:

Facilitating Collaborative Solutions: The Accelerator brings together diverse stakeholders to address market barriers, fostering collaboration and innovative approaches to unlock funding for the project.

Developing OBF Framework: The Accelerator will aid in designing outcomes-based financing mechanisms, tying funding to verifiable climate adaptation outcomes, attracting investors with greater certainty and risk management.

Scaling Impact: Accelerator support will enhance the project's visibility, attracting more investors and resources to scale the initiative, empowering a larger number of farmers to adapt to climate challenges.
Social/developmental challenge: The program addresses several market failures that hinder the effective implementation of outcomes-based financing (OBF) for climate adaptation among smallholder farmers. 

Firstly, traditional financial institutions often perceive smallholder farmers as high-risk borrowers, resulting in limited access to debt financing despite their critical role in food security and climate resilience. Secondly, inadequate data and metrics to measure and verify climate adaptation outcomes create uncertainty for investors, hampering funding opportunities. Thirdly, the absence of tailored financial products and risk-sharing mechanisms further discourages investment in climate-smart initiatives. Lastly, the lack of coordination and collaboration among stakeholders in the OBF ecosystem limits the scalability and impact of climate adaptation projects. 

By addressing these market failures, the program aims to unlock funding and drive positive change in the agriculture sector, promoting climate resilience and sustainable development.
Expected intervention model: The Pepea Capital's climate adaptation project aims to revolutionize financing opportunities for 400 smallholder farmers in Kenya, fostering climate resilience in vulnerable communities. Through their Outcomes Accelerator platform, Pepea Capital collaborates with Ministry of Agriculture in Kenya, investors, and service providers, to address market barriers and unlock funds for outcomes-based financing initiatives. The project targets the pressing need for climate adaptation among 400 smallholder farmers, who face increasing challenges.

By leveraging debt financing, the project seeks to empower smallholder farmers with access to essential resources and technologies that enhance their ability to adapt to climatic uncertainties. The desired outcomes include increased climate resilience, improved agricultural productivity, and enhanced livelihood opportunities. The initiative aims to promote sustainable land management practices, encourage the adoption of climate-smart agricultural techniques, and strengthen local value chains and markets.

Through careful monitoring and evaluation, the project aims to demonstrate the positive impact of outcomes-based financing on climate adaptation and the potential for replication and scaling in other regions. By fostering collaboration among stakeholders, Pepea Capital's project strives to create lasting change, contributing significantly to the achievement of Sustainable Development Goals and ensuring a more sustainable and resilient future for smallholder farmers and the broader community.
Policy sectors — Employment and private sector development: No; Education: No; Social protection: No; Criminal justice: No; Health: No; Agriculture: No; Environment and climate change: Yes; Water, Sanitation and Hygiene: No; Energy: No; Humanitarian: No; Early Childhood Education: No; Other: 
Primary SDG goal: 8,13
Country income classification of beneficiaries — Low-income: No; Lower-middle-income: Yes; Upper-middle-income: No; High-income: No
Notes: Data for this pipeline project was last updated in August 2023
Delivery location: Kenya