The World Bank’s International Finance Corporation (IFC) is investing up to US$500 million in Indonesian lender PT Bank BTPN Tbk (BTPN) through the latter’s social and green bonds.

The issuance of the bonds will be a first for BTPN, a subsidiary of the Sumitomo Mitsui Banking Corporation, highlighting the bank's support for Indonesia's micro, small and medium enterprise (MSME) sector, and for women-led businesses in particular.

With thematic bonds still uncommon in the Indonesian market, the IFC investment is expected to help grow the nascent market for the fixed-income instruments especially among private sector issuers, and will hopefully contribute to advancing the depth and breadth of the country’s capital markets.

A minimum of US$400 million will be invested equally in the social bond and green bond with the balance of US$100 million to be allocated to either the social bond or the green bond.

In a statement, IFC says it will also support BTPN through knowledge sharing, innovation, and capacity building in relation to climate risk management (including environmental and social risk management), green building finance, supply chain finance, and gender finance.

Climate financing

Like the rest of the region, Indonesia is highly vulnerable to climate change, but the availability of sophisticated financial products to address the issue is limited, thereby posing challenges for the country to ramp up its climate financing.

The IFC's investment in a BTPN green bond will support Indonesia's goal for greener growth, aligning with the Indonesian government’s Paris Agreement commitments.

The bond will be used to finance green projects, including renewable energy, energy efficiency, green buildings, and clean transportation, among others. It will help bridge financing gaps for climate mitigation and adaptation and is projected to result in greenhouse gas emissions reduction equivalent to 137,326 tonnes of carbon dioxide per year.

IFC's investment in the BTPN social bond will be used to finance MSMEs, which are vital to the Indonesian economy and are key job creators but are hindered by limited access to finance.

The financing gap for MSMEs, estimated at US$166 billion or about 19% of Indonesia's GDP, was exacerbated by the Covid-19 pandemic.

Women entrepreneurs

IFC managing director Makhtar Diop says the investment should not only drive green growth but also increase access to vital financing for small businesses owned by women.

With around half of the social bond proceeds earmarked for women-owned MSMEs, the structure of the bond will ensure that female entrepreneurs, who are an important segment of MSMEs but face even wider financing gaps, receive greater access to finance.

Bank BTPN president director Henoch Munandar says: "IFC's proposed investment in Bank BTPN's social and green bond issuance proves our commitment to supporting the achievement of sustainable development goals through environmental and social loans.

“This will help us in realizing our vision to give significant change in the lives of millions. We will use the proceeds to support SMBC Group's transition plan in promoting sustainable finance and aligning its loans and investments with net-zero emissions by 2050."