The International Finance Corporation (IFC) announced on Thursday it will invest up to US$500 million in publicly listed bank BTPN to be used to fund green projects and micro, small and medium enterprises (MSMEs), which it labels as social projects.

The investment was made possible through a bond issuance by the IFC that it categorized as ‘thematic bonds’ since the money is designated for specific purposes, such as sustainability, climate change or gender equality, among other themes.

“We are ready to take risks that, maybe, traditional banks are not ready to take. So, this is one of the value propositions that we have,” IFC managing director Makhtar Diop told The Jakarta Post on May 16 ahead of the announcement.

The IFC said the deal had been given regulatory approval by the Financial Services Authority (OJK) on Tuesday.

The IFC said Indonesia’s financing for both green projects and MSMEs had been inadequate. It pointed out that the country’s private banking portfolio for the green sector only contributed around 9 percent of the total investment needs that were required to achieve Indonesia’s 2030 climate goals.

Meanwhile, the financing gap for MSMEs is estimated at $166 billion, or about 19 percent of the country’s gross domestic product (GDP).

The IFC mandated BTPN to channel $200 million to each category, with a note that the remaining $100 million was to be completely poured into either.

On what was labeled as green, BTPN will be required to provide lending for projects that cover renewable energy, energy efficiency and clean transportation. The IFC expects the financing to help close gaps in climate mitigation and adaptation.

The IFC hopes to reduce greenhouse gas emissions by as much as 137,326 tonnes of carbon dioxide per year through the investment.

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With the social label, BTPN will be required to channel loans to MSMEs with around half of the total earmarked for women-run MSMEs to provide greater financing access where it sees there are often wide gaps.

MSMEs are the backbone of Indonesia’s economy as they contribute more than 60 percent of the country’s GDP and employ well over 90 percent of the workforce.

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Although BTPN will have full control over the money, the IFC will keep a close eye to make sure that the funds are used as they were intended by setting targets and key performance indicators the lender has to meet.

“So, we set a certain number of targets when we issue those bonds and those bonds require the company to reach them,” said Diop, adding: “[We collect] data to ensure that targets are met”.

Moreover, Diop revealed that the IFC was looking to become a part of Indonesia’s energy transition through several actions like bringing in carbon capture technology and jumping on the electric vehicle (EV) bandwagon.

“We are seeking, in the very near future maybe, to double our commitment in Indonesia. I will not tell you in which sector because it really depends on the responses we have in the private sector,” said Diop.

“But it’s clear that there is very strong ambition from the IFC,” he added.

Aside from the green and social labels, the IFC also provides blue bonds that are reserved for water-related projects, but these were not covered in its current deal with BTPN.

Bank BTPN president director Henoch Munandar said in a statement on Thursday the lender would use the proceeds to support its parent company SMBC Group’s transition plan in promoting sustainable finance and aligning its loans and investments with net-zero emissions by 2050.