Financing NTB’s Future: Green Sukuk as a New Pathway for Sustainable Development

by Niken Arumdati, ST, M.Sc⊃1; and Gineng Sakti⊃2;

⊃1;Secretary of the Energy and Mineral Resources Office of NTB Province
⊃2;Green Investment Officer, Global Green Growth Institute (GGGI)

Green infrastructure development forms the foundation of a resilient, inclusive, and sustainable future for West Nusa Tenggara (NTB). However, regional fiscal space is becoming increasingly constrained in financing growing development needs. The Regional Budget (APBD), largely dominated by routine expenditures and heavily dependent on central government transfers, has reduced the capacity to finance infrastructure and strategic regional programs. In this context, innovative financing is no longer merely an alternative—it is an urgent necessity for NTB to move swiftly toward its green transition agenda.

A key element reinforcing the urgency of green financing is NTB’s official commitment to achieving Net Zero Emissions (NZE) by 2050, as stipulated in the Regional Energy Plan (RUED). The RUED not only outlines energy supply strategies but also sets emission reduction targets, accelerates renewable energy deployment, and prioritizes energy efficiency. The NZE 2050 target positions NTB among the few provinces in Indonesia with an explicitly progressive long-term climate policy direction.

This commitment is further strengthened by other progressive development targets that define NTB’s identity, including accelerated green economy implementation, sustainable tourism development, low-emission agricultural transformation, and transport electrification expansion.

Since 2023, the Energy and Mineral Resources Office (ESDM) of NTB, in collaboration with the Global Green Growth Institute (GGGI) through the Renewable Energy Accelerated Transition (RE-ACT) Project supported by the Ministry of Foreign Affairs and Trade of New Zealand, has strengthened institutional frameworks and technical capacity to access various green financing instruments. GGGI has supported institutional and policy framework development, program planning, and introduced non-conventional instruments such as green bonds, blended finance, and Islamic financing schemes. These efforts are essential given that green investment needs significantly exceed the region’s fiscal capacity.

The APBD remains crucial for financing non-revenue-generating essential services such as education, health, irrigation, and social infrastructure. However, development demands are growing far faster than the APBD’s capacity. Therefore, projects with revenue-generating potential should gradually shift toward more creative and sustainable financing schemes.

Beyond the APBD, three commonly utilized instruments are regional loans, Public-Private Partnerships (PPP), and business-to-business (B2B) schemes—each offering significant potential when applied appropriately.

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Regional loans can serve projects with measurable cash flows or revenue-generating assets. Their advantages include competitive interest rates, longer tenors, and technical assistance from lenders. However, challenges lie in the limited availability of affordable regional financing.

PPP schemes also offer substantial opportunities. They enable the private sector to build and operate public infrastructure without immediately burdening the APBD. PPPs are particularly relevant for capital-intensive projects with high economic and social impacts. With central government fiscal support mechanisms such as Viability Gap Funding (VGF) and Project Development Facility (PDF), local governments can enhance project feasibility. Nonetheless, PPPs require careful preparation due to contractual complexity, legal certainty requirements, and planning readiness. When well-prepared, PPPs can become highly efficient instruments for large-scale infrastructure development.

Meanwhile, B2B schemes are suitable for fully commercial projects with strong revenue potential. These schemes are particularly relevant for medium- to large-scale renewable energy projects, tourism areas, economic activity centers, processing industries, and sustainably managed natural resource-based projects. The regional government’s role is to provide regulatory certainty and ensure environmental sustainability. The main challenges include risk perception related to licensing uncertainty, policy shifts, and the limited number of fully bankable commercial projects. When a conducive investment climate is ensured, B2B schemes can accelerate private investment.

NTB has already demonstrated success in innovative financing. The 580 kW Pandan Duri Micro-Hydropower Plant (PLTMH) represents a blended finance model combining an international grant from the UK Government through the MENTARI program with private investment by PT Brantas. The investment grant helped close the capital cost gap, making the project commercially viable. This model proves that combining public funding, international grants, and private investment can create high-impact renewable energy projects.

National regulatory frameworks further encourage regions to adopt innovative financing. Law No. 1/2022 on Central-Regional Fiscal Relations explicitly opens space for regional bonds and sukuk as long-term capital mobilization instruments. With this legal foundation, NTB has the opportunity to pioneer green financing breakthroughs at the subnational level.

Two strategic scenarios stand out for NTB. The first is the issuance of provincial green bonds by the Provincial Government, with proceeds allocated as equity participation in Bank NTB Syariah, regional-owned enterprises (BUMD), or green project joint ventures. Sustainable funding cycles could be created through dividends from these entities. However, long-term fiscal risks and technical readiness requirements necessitate careful implementation.

The second scenario is the issuance of green sukuk by Bank NTB Syariah. Under this model, Islamic investors purchase sukuk, the bank channels financing to BUMDs and viable green projects such as renewable energy initiatives, projects repay financing to the bank, and the bank distributes returns to investors. This structure allows national and international Islamic capital flows into the green sector without creating fiscal burdens on the APBD. Bank NTB Syariah’s governance standards in accordance with Financial Services Authority (OJK) regulations further enhance implementation readiness.

NTB’s strength as a Sharia-based investment hub reinforces the feasibility of green sukuk. The province has a strong societal preference for Islamic finance, an MSME ecosystem accustomed to Sharia products, and a well-established identity as a halal economy and halal tourism center. Bank NTB Syariah, having fully transformed into a regional Islamic bank, enjoys strong public trust and legitimacy. This social and cultural capital provides NTB with a natural sukuk market niche and competitive advantage compared to other provinces.

NTB’s Sharia investment potential is further strengthened by national and global contexts. According to the Financial Services Authority (OJK), Indonesia’s Islamic finance industry assets reached approximately IDR 3,000 trillion in 2025, reflecting a substantial capital ecosystem that can be directed toward impact instruments. National Islamic banking assets reached nearly IDR 970 trillion as of June 2025, indicating strong intermediation capacity.

On the demand side, the Badan Pengelola Keuangan Haji (BPKH) manages approximately IDR 170–172 trillion in funds as of end-2024, representing a potential source of investment aligned with sukuk mandates. Globally, the sukuk market continues to grow rapidly, with international sukuk issuance reaching USD 190–200 billion annually, demonstrating liquidity and investor appetite for Sharia instruments, including green sukuk. These figures illustrate that Islamic financial institutions possess both the capacity and preference to allocate capital into credible green sukuk instruments.

Nevertheless, the use of sukuk or green bonds requires strong risk mitigation, including project cash flow risks, governance risks, market risks, greenwashing risks, and political or licensing risks. These risks can be minimized through rigorous feasibility assessments, independent audits, external reviews of green sukuk frameworks, clear project pipelines, and strong policy stability commitments from the regional government.

With solid economic fundamentals, a robust Sharia ecosystem, and steadily improving institutional readiness, NTB has a significant opportunity to become the first province to integrate modern Islamic finance with a green development agenda. Green sukuk can serve as the meeting point between development ambition, sustainability imperatives, and fiscal independence—demonstrating that fiscal constraints are not barriers, but catalysts for innovation in financing the region’s sustainable future.

Editor:Ismail Zakaria, Tyson Michael Burnett.