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Indonesia’s push to expand decentralized solar PV could create opportunities not only for clean energy access, but also for strengthening village economies. As initiatives such as Koperasi Desa Merah Putih (KDMP) create new institutional pathways for village-level investment, the question is increasingly shifting from whether community solar can be deployed to how it can be financed sustainably at scale.
Community solar does not fit neatly within conventional project-finance models. Financing needs change throughout the project lifecycle, while villages differ significantly in their economic activities, institutional capacity, access to public resources, and ability to take on commercial finance. Designing a scalable model therefore requires more than identifying a single source of capital: it requires understanding which capital is best suited to which risk, at which stage, and under what local conditions.
This report explores how Islamic blended finance could provide such a framework. By combining social, concessional, public, commercial, and community capital across the lifecycle of a solar project, Islamic finance could complement existing financing sources while supporting both long-term asset sustainability and local development. The report sets out a conceptual financing framework, illustrative capital-stack scenarios and Sharia structures, and a pathway for testing the approach through village-level pilots.
Highlights
1. Finance should follow the project lifecycle
Community solar requires different types of capital at different stages, from project preparation and construction to operations, expansion, and asset replacement.
2. Islamic finance can complement, rather than replace, other sources of capital
Grants, concessional finance, Islamic bank financing, waqf, public resources, and commercial capital can be combined within a broader blended-finance structure.
3. There is no single capital stack for every village
The appropriate financing mix depends on project maturity, local revenue potential, institutional capacity, government support, and the ability of cooperatives and communities to contribute capital.
4. Bankability depends on productive use and governance, not financing alone
Linking solar with viable local businesses can strengthen electricity demand and revenues, while transparent governance, capable institutions, clear roles, and sound project preparation are essential for investor and community confidence.
5. Pilots should come before standardization
Testing the framework across villages with different economic and institutional conditions can reveal which financing structures, Sharia contracts, and governance arrangements are scalable—and which need to remain context-specific.