Report - Mapping Indonesia's Local Capital Providers: Needs & Challenges in Bridging the Missing Middle Funding Gap in Climate Impact Investment

Introduction & Context

• Indonesia has diverse Local Capital Providers (LCPs) ranging from banks and institutional investors to philanthropic organizations and HNWIs
• Despite large pools of capital, participation in impact and sustainable financing remains low
• The mapping aims to understand opportunities, barriers, and pathways to mobilize local capital for impact

Banks

• Banks dominate domestic financing and are the most active LCPs
• Their lending is still heavily concentrated in conventional and low-risk sectors
• While green and sustainable finance products are starting are starting to emerge, adoption is slower than global peers
• Barriers include regulatory conservatism, limited internal capacity, and perceived risks of new sustainable sectors

Institutional Investors (Pension Funds & Insurance)

• Hold significant assets under management, making them a key potential source of long-term capital
• Current allocations to sustainable/impact finance are minimal, often less than 1-2%
• Barriers: strict regulatory frameworks, lack of investable products, and risk-averse culture
• Despite challenges, they present one of the largest untapped opportunities for mobilizing domestic capital into sustainable finance

Philanthropy, Foundation, & HNWIs

• Philanthropy & Foundations

  • Provide catalytic funding, often used to de-risk or pilot innovative financing approaches
  • Contribution size is modest compared to institutional investors, but influence is strategic

• HNWIs & Family Offices

  • Growing interest in sustainable and impact investments
  • Engagement is fragmented, with activity often linked to personal or family-driven causes
  • Potential to mobilize capital if provided with structured impact investment products

Gaps & Opportunities

• Key Gaps

  • Limited pipeline of investable impact projects
  • Regulatory barriers discourage innovation and risk-taking
  • Low awareness/capacity among LCPs in impact measurement and blended finance

• Opportunities

  • Blended finance can mobilize more domestic capital by sharing risks
  • Developing tailored products (e.g., green bonds, impact funds) for pensions, insurance, and HNWIs
  • Strengthening cross-sector collaboration to build trust, share knowledge, and align incentives