Board of Governors Member Regulation Number 14 of 2026: Transforming Bank Indonesia Letter of Credit Transactions Through the Adoption of Sharia Principles

Introduction

On 25 June 2026, Bank Indonesia issued Board of Governors Member Regulation Number 14 of 2026 on Letter of Credit Transactions (“PADG 14/2026”). PADG 14/2026 was promulgated as a comprehensive guideline governing the implementation of Letter of Credit (“L/C”) transactions at Bank Indonesia based on the principles of good governance, namely independence, consistency, coordination, accountability, and transparency. PADG 14/2026 was introduced in response to Bank Indonesia’s need to align the L/C transaction service mechanism with developments in business practices and the dynamics of international trade.

Substantively, PADG 14/2026 regulates the same matters as its predecessor, Board of Governors Member Regulation Number 23/21/PADG/2021 on Letter of Credit Transactions at Bank Indonesia (“PADG 23/2021”), namely the operational framework, general principles, issuance, amendment, payment of claims, and settlement of L/C transactions within the context of financial relations with the Government. However, PADG 14/2026 has been updated to reflect current business processes and strengthen good governance by introducing several key enhancements, including the accommodation of L/C issuance based on Sharia principles, together with the relevant Sharia contractual arrangements (akad). With the issuance of PADG 14/2026, PADG 23/2021 is revoked and declared no longer in effect.

Comparison

The following table summarizes the key differences between PADG 14/2026 and PADG 23/2021:

Key Provisions

Scope and Eligible Applicants for L/C Transactions

Pursuant to Article 5 paragraph (1), the L/C issuance facility provided by Bank Indonesia is available to customers consisting of:

·      central government institutions;

·      non-bank State-Owned Enterprises (SOEs); and

·      other parties approved by Bank Indonesia.

Furthermore, Article 6 provides that L/C transactions are intended to facilitate payments for the importation of goods and/or services in support of national interests, including:

·      infrastructure development;

·      procurement of defense and security equipment; and

·      the continuity of operational activities of state institutions.

Characteristics of L/Cs and Adoption of Sharia Principles

Pursuant to Article 11, every Letter of Credit (L/C) issued by Bank Indonesia must be in the form of a Sight L/C and must possess the following characteristics:

·      unconfirmed, meaning that no confirmation is provided by another bank;

·      restricted, meaning that payment may only be made through the designated bank; and

·      non-transferable, meaning that the L/C may not be transferred to any third party.

In addition, Article 5 paragraph (2) introduces a new provision authorizing Bank Indonesia to issue L/Cs based on Sharia principles upon the request of the Applicant, thereby providing an alternative financing mechanism that complies with Sharia principles.

Discrepancies and Payment Procedures

Pursuant to Article 27, where Bank Indonesia identifies any Discrepancy during its examination of L/C claim documents, Bank Indonesia shall notify the:

·      Advising Bank and/or Nominated Bank; and

·      Applicant.

The notification to the Applicant must include a request for the Applicant’s approval or rejection of payment under the L/C despite the existence of the Discrepancy.

Furthermore, pursuant to Article 28 paragraph (1), where the Applicant approves the Discrepancy:

·      the approval letter must be signed by an Authorized Officer whose specimen signature has been registered with Bank Indonesia; and

·      the approval must be submitted to Bank Indonesia no later than 21 (twenty-one) working days after the date of the Discrepancy notification.

Pursuant to Article 28 paragraph (2), where the Applicant rejects the Discrepancy:

·      the rejection letter must be signed by an Authorized Officer whose specimen signature has been registered with Bank Indonesia;

·      the rejection must be submitted to Bank Indonesia within 21 (twenty-one) working days after the date of the Discrepancy notification;

·      Bank Indonesia shall notify the Advising Bank and/or Nominated Bank of the Applicant’s rejection of the L/C payment; and

·      upon request from the Advising Bank and/or Nominated Bank, Bank Indonesia shall return all L/C claim documents to the sender.

Where the Applicant is unable to provide either approval or rejection within the prescribed period, the following provisions apply:

·      the Applicant must notify Bank Indonesia of the reasons for being unable to provide approval or rejection;

·      such explanation must be submitted within 21 (twenty-one) working days after the date of the Discrepancy notification, either electronically or in hard-copy form; and

·      if the Applicant remains unable to provide approval or rejection, the Applicant must continue submitting updated explanations at intervals of no later than every 21 (twenty-one) working days until approval or rejection can be provided.

Liability for Late Payment

Pursuant to Article 52, where delays in the payment of L/C claims give rise to claims for fees or charges by the Beneficiary or a foreign bank, the party responsible for the delay—including Applicants from government institutions or non-bank State-Owned Enterprises (SOEs)—shall be fully responsible for paying all penalties, charges, or late payment fees arising from such delay.

Closing

With the enactment of PADG 14/2026, Bank Indonesia strengthens the governance of L/C transactions through the enhancement of the legal characteristics of L/C instruments, the introduction of L/C issuance based on Sharia principles, and the refinement of administrative procedures and transaction settlement mechanisms.

Accordingly, government institutions, non-bank State-Owned Enterprises (SOEs), and other eligible Applicants should ensure that their L/C transactions comply with the latest requirements, including the fulfillment of documentary requirements, procedures for resolving discrepancies, and the timely payment of L/C obligations.