Methods of Payment
U.S. firms exporting to Indonesia use a variety of payment methods depending on their relationship with the purchaser. Payment options for export transactions include letters of credit (L/C), cash in advance, wire transfer, cash on delivery, and open account.
Confirmed, irrevocable letters of credit, while imposing additional costs, minimize risks faced by the exporter. On July 21, 2017, the Government of Indonesia released Government Regulation No. 29/2017 on Methods of Payment and Delivery of Goods in Export and Import Activities. The scope of this Government Regulation covers the manner of payment of goods, the manner of delivery of goods, and supervision. In terms of payment methods, exporters may pay with cash, a Letter of Credit (L/C), or other means of payment for goods. Letters of Credit are one of the most widely used methods of payments in Indonesia because of the added security for both the importer and exporter.
For a foreign company to open a bank account, they will need to present certain documents to the bank, including investment data from the Indonesia Coordinating Investment Board (BKPM), domicile certificate, tax identification number, shareholder passports, business license and company deed of establishment.
Both global and local credit rating agencies operate in Indonesia. Global credit rating companies in country include A.M. Best (U.S.), Baycorp Advantage (Australia), Dominion Bond Rating Service (Canada), Dun & Bradstreet (U.S.), Fitch Ratings (U.S.), and Standard & Poor’s (U.S.). A local credit rating agency is PT Pemeringkat Efek Indonesia (Pefindo). Banks use third-party collection agencies to recover outstanding debts. However, there have been incidents in the past where collection agencies were accused of using harsh threats or violence to some debtors. Credit cards are one of most widely used methods of payment in Indonesia. There are approximately 20 credit card issuing banks in Indonesia, including Citibank, HSBC, BCA, Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI), CIMB Niaga, and PermataBank. Charge cards are not as common in Indonesia, though there are a few banks issuing charge cards, including Bank Danamon, BNI Sharia Banking and CIMB Niaga Sharia Banking.
For more information on methods of payment or other trade finance options, please read the Trade Financial Guide.
Banking Systems
As of June, 2023, Indonesia had 109 commercial banks (List of Banks) and approximately 1,496 rural banks, according to Indonesia’s Financial Services Authority (“Otoritas Jasa Keuangan” or OJK). There are four banks owned by the central government and 27 owned by regional governments. The OJK regulates key aspects of the banking and financial system, including bank regulation and supervision, whereas the Bank of Indonesia, the central bank, regulates payment systems and conducts foreign exchange supervision.
Indonesia is encouraging the development of Islamic banking and seeks to increase its share of total banking assets to more than five percent. Islamic banks prohibit the collection and payment of interest by lenders and investors. Indonesia’s Deposit Insurance Corp. (LPS) guarantees bank deposits up to 2 billion Rupiah per depositor per bank (about U.S. $140,000) (Insured Deposit). Only those accounts carrying interest rates equal to or below LPS maximum guaranteed reference rates are deemed eligible for LPS deposit guarantees.
The Indonesian export finance agency (PT. Lembaga Pembiayaan Ekspor Indonesia, LPEI), which operates under the English name of Indonesian Eximbank, provides competitive export financing and advisory and other exported related services. The export credit agency’s goal is to help promote access to worldwide markets for Indonesia’s export-related commodities, support Indonesia’s international trade, and improve Indonesian exporters’ competitiveness in global markets.
Commercial Banks are divided into four groups of business activities, referred to as BUKU categories 1, 2, 3 and 4, depending on their amount of core capital. Banks in BUKU category 1 are limited to general banking activities in Rupiah and acting as money changers. Banks in BUKU categories 2, 3, and 4 are authorized to engage in Rupiah and foreign currency banking activities with a broader scope, including payment systems and electronic banking, capital participation in non-financial institutions for credit rescue, and capital participation in other financial institutions. Commercial Banks are prohibited from the insurance business.
Indonesia Eximbank (PT. Lembaga Pembiayaan Ekspor Indonesia/LPEI) was established in 2009 and acts as a financial institution under the Government of the Republic of Indonesia. Its main objective is to boost national export growth and to assist exporters in expanding their business capacity. Indonesia Eximbank also conducts training and offers consultation services to banks, financial institutions, exporters and producers of export goods, especially for SME, medium-scale enterprises, as well as consumers’ cooperatives.
For data on banking in Indonesia, refer to the OJK website Indonesia Banking Statistics.
For more information on the banking system please read the section Capital Markets and Portfolio Investment of the Investment Climate Statement.
Foreign Exchange Controls
Only authorized banks may carry out foreign trade-related exchange operations. The Bank of Indonesia (BI) requires the submission of evidence of underlying transactions to support the purchase of a foreign currency against the Rupiah through banks exceeding $25,000 per month (regulation 18/34/DPM). BI regulation No. 18/19/PBI/2016 describes prohibitions and restrictions in conducting foreign exchange transactions with foreign counterparts.
As part of a series of measures designed to strengthen the Indonesian rupiah and help reduce the current account deficit, Bank Indonesia issued a regulation in 2015 (17/3/PBI/2015), mandating that all domestic financial transactions must be conducted in Rupiah. While this was predicted to have a serious impact on some U.S. businesses operating in Indonesia, the regulation’s exemptions have helped to moderate the extent to which foreign firms are affected. This rule stipulated that the mandatory use of Rupiah for “all transactions in Indonesia that are for the purpose of payment, all transactions in Indonesia that are for the settlement of other obligations that must be fulfilled with money, and all other financial transactions in Indonesia.”
However, regulation 17/3/PBI/2015 also contained many exemptions, including:
- Certain transactions related to state budget revenue and expenditure, such as receipts from oil and gas royalties
- Acceptance or provision of grants from or to overseas entities
- Transactions for the purpose of international trade
- Bank deposits in foreign currencies
- International financial transactions where either the provider or the receiver of the financing is domiciled overseas
- Business activities in foreign exchange conducted by banks pursuant to the law that regulates banking and sharia banking
- Foreign exchange transactions involving commercial paper issued by the Government in primary markets or secondary markets pursuant to the law regulating state debentures and state sharia commercial paper
Other foreign exchange transactions that are conducted in accordance to previous laws regarding financial sector regulation such as the Bank Indonesia Law, the Capital Investment Law and the Indonesian Export Financing Institutions Law.In line with anti-money laundering laws, Bank of Indonesia Regulation No. 24/7/BI/2022 tightened restrictions on the amount of cash that may be carried across its borders. Physically carrying more than 100 million Rupiah (approx. U.S. $8,000) out of Indonesia at any one time requires prior approval from BI and must be reported to the Director General of Customs and Excise (DGCE). A 10% fine up to 300 million Rupiah may be applied for failure to report. Persons bringing in more than 100 million Rupiah must declare the amount. Under a new BI regulation dated May 5, 2017 and effective from March 5, 2018 (20/2/PBI/2018), no one except banks and licensed money changers will be allowed to bring in banknotes equivalent to Rp 1 billion ($75,000).
Under Regulation No. 21/15/PBI/2019, the transfer of foreign currencies from Indonesia in the amount of more than IDR 10 billion or its equivalent requires the sender to provide supporting documents regarding the identity of both the sender and the recipient as well as the purpose of such transfer and provide supporting documents for the basis of the transfer to the bank.
Exporters in Indonesia must repatriate their export earnings from offshore banks to domestic banks within 90 days from the date of the export declaration form. Once repatriated to Indonesia, there are no restrictions on exporters from re-transferring their export earnings back to an offshore bank.
BI also requires borrowers to conduct their foreign currency borrowing through domestic banks registered with BI. The regulations apply to borrowing in cash, non-revolving loan agreements, and debt securities.
BI Regulation No. 18/18/PBI/2016 regarding Foreign Currency Transactions against rupiah between banks and domestic parties provides that Indonesian citizens, legal entities and residents that purchase foreign currency in excess of U.S. $25,000 or its equivalent per month must provide information on the underlying transaction demonstrating that it relates to one or more of the following activities: 1) domestic and overseas trading of goods and services; 2) investment in the form of direct investment, portfolio investment, loan, capital and other investment, domestic and overseas; and 3) extension of credit or financing by a bank in foreign currency or in rupiah for trading and investment activities, or both.
U.S. Banks and Local Correspondent Banks
There are several U.S. commercial banks operating in Indonesia such as Bank of America, Citibank, and J.P. Morgan Chase Bank.
Regulation 17/3/PBI/2015 also provides that if businesses have trouble implementing the mandatory use of Rupiah for non-cash transactions, Bank Indonesia may issue them exemptions. In issuing these exemptions, BI will consider the readiness of the business actor, the continuity of the business activity, as well as investment activity and the interests of national economic development.
The limit on transaction amounts for commercial banks engaging in derivative transactions with foreign counterparts is $1 million. This limit covers all types of transactions involving foreign exchange selling and purchasing against the Rupiah; such transactions were previously unrestricted. However, the restrictions will not apply if the derivative transactions are conducted for hedging purposes within the framework of an investment in Indonesia that will last for at least three months. The regulation also requires foreign or domestic currency lending to foreign counterparts to be conducted in the form of a syndicated loan that engages a prime bank (that is, commercial banks with a certain investment rating from a well know rating agency) as lead bank for the purpose of project financing in the real estate sector in Indonesia. For violations, the regulation levies a fine of 10 percent of the transaction’s value.