Blended Finance for Land Use

Updated 2026-11-02 · 4 min read · By the akar.earth specialist team

How blended finance works for forest, agroforestry and restoration projects in Indonesia: structures, who provides each layer, and how carbon revenue fits.

Blended finance for land use combines concessional money (grants, guarantees, first-loss capital or cheap loans from public and philanthropic sources) with commercial investment, so that forest, agroforestry and restoration projects can attract private capital they could not attract alone. Carbon credit revenue is often one repayment source within the structure, not the whole business case.

Land projects in Indonesia face a familiar set of barriers: long payback periods, thousands of small farms, unclear tenure, regulatory change and uncertain carbon prices. BeZero describes Indonesian credits as trading at a fraction of real abatement cost, partly because of regulatory uncertainty. Blended structures address the risks that keep commercial money out.

Common blended structures

Step-by-step: building a blended finance case

1. Define the full business model. Carbon, commodity income (coffee, cocoa, rubber, timber, fruit), ecosystem service payments and cost savings.
2. Identify the risks that stop commercial investment: tenure, delivery, price, regulation, counterparty.
3. Match each risk to a concessional instrument. Grants for early-stage costs, guarantees for political risk, first-loss for delivery risk.
4. Quantify public benefits. Use ecosystem service valuation to show why public money is justified, such as flood protection or fire prevention.
5. Design the cash waterfall. Who gets paid first from carbon and commodity revenue, and how communities’ shares are protected.
6. Secure anchor commitments. An offtake agreement or prepayment can anchor the structure.
7. Set impact metrics and reporting that satisfy all funders without duplicating effort.

Where carbon fits

Carbon revenue works well as a repayment source for debt or a return for prepayment investors, if forecasts are conservative. It works poorly as the only income for farmers, because credits arrive years after planting. The strongest land-use cases combine carbon with commodity income: shade trees that also produce fruit or timber, or rubber gardens with higher-value companion trees. See prepayment and streaming finance.

Indonesia specifics

• National vehicles: Indonesia’s environmental fund agency (BPDLH) manages environmental funds, including result-based payments. Check current programmes and eligibility.
• Regulatory framework: Perpres 110/2025 lists carbon trading, result-based payment, levies and Article 6 among the carbon economic value instruments. Structures should fit within it.
• Social forestry: community permit holders can be project participants under Permenhut 6/2026, which changes who signs agreements and receives funds.
• Commodity links: EUDR compliance needs for coffee, cocoa, rubber and palm oil create a business case for traders to co-fund farm mapping and agroforestry.

An illustrative structure for smallholder agroforestry

Picture a programme to add shade and timber trees to coffee and cocoa farms across several districts, run by a developer with farmer cooperatives:

1. Grant layer: a foundation funds farmer registration, FPIC, plot mapping and baseline measurement. These outputs also serve EUDR due diligence, so a commodity buyer co-funds them.
2. Concessional loan: a development finance institution lends for nurseries and planting at a low rate with a long grace period.
3. First-loss tranche: philanthropic capital absorbs the first losses if survival or credit volumes fall short.
4. Commercial debt or prepayment: an impact investor or corporate buyer provides the rest, repaid from credit sales or in credits.
5. Revenue waterfall: farmers receive planting and survival payments first, then a fixed share of credit revenue; investors are repaid from the remainder.

The concessional layers do not subsidise the whole project. They target the specific risks, such as early-stage data costs and survival uncertainty, that would otherwise keep commercial capital out. Over time, as the programme builds a track record of survival and verified credits, the concessional share should shrink and commercial money should carry more of the load.

Common mistakes

• Building a structure around optimistic carbon prices.
• Using grants for activities that commercial investors would fund anyway.
• Ignoring transaction costs of combining many funders.
• Leaving communities as the residual claimant after all investors are repaid.
• Not aligning reporting requirements across funders.

Read more in the climate finance hub. Our carbon strategy service helps developers and investors design structures that fit Indonesian rules.