Indonesia’s remittance services improving

Though not as significant as in the Philippines, remittances to Indonesia from overseas foreign workers (OFWs) are crucial for thousands of families in the country. Remittances have shown strong growth in recent years, providing valuable opportunities for Indonesia’s sizeable excess labour force. Strong recent growth and new banking regulations have been a boon to the industry, leading to the proliferation of a host of new remittance service options. With workers overseas faced with the cost burden of high remittance and hiring fees, and a persistent skill gap, demonstrated by the preponderance of female domestic staff amongst its OFW population, new payment platforms could bring much-needed relief to millions of Indonesians working abroad. However, challenges are on the horizon too. The expansion of Bitcoin remittances could have a negative impact on existing service providers, while the government’s eventual objective of halting the outflow of low-cost labour has raised questions about the remittance industry’s long-term growth prospects.

Going Abroad

According to the Jakarta-based NGO Migrant Care, some 6.5m Indonesians were working overseas as of 2014 – an estimated 90% of whom were female domestic workers – a sharp increase over the estimated 2.7m OFWs in 2007. The majority are employed in Malaysia, Hong Kong and Saudi Arabia, while others find work in Singapore, Taiwan, Japan, Kuwait and the UAE. According to the National Labour Placement and Protection Agency (BNP2TKI), of the 25,893 registered workers who moved abroad in January 2015, 30% moved to Malaysia, 27% to Taiwan, 7.7% to Singapore and 7.2% to Saudi Arabia. The greying demography of developed East Asian nations such as Japan, combined with Indonesia’s large, young population – the country has a median age of around 29 in 2014 – offers scope for mutual gains from migration. With unemployment of 6.3% in 2013, foreign labour demands also offer a critical channel through which to absorb Indonesia’s excess labour force, in some cases providing higher wages than what could be earned back at home.

Economic Weight

The economic impact of these workers is significant. World Bank figures put Indonesia’s remittances at $7.2bn in 2012 – or about 1% of GDP – making it the third-largest recipient in Southeast Asia, behind the Philippines ($24.45bn) and Vietnam ($10bn.) Since then, remittances have expanded steadily, growing 7.4% year-on-year (y-o-y) in the first half of 2013 to $3.7bn. The BNP2TKI found a total of Rp88.6trn ($7.32bn) in remittances in 2013, a 2% increase over 2012, and the World Bank estimates a total of $7.5bn in 2014. These figures may be underestimating remittance flows, given that more than half of all OFWs do not have a bank account, and many bring earnings home in cash. Taking this into account, the BNP2TKI estimates official and unofficial remittances could be as high as Rp120trn ($12.36bn) per year.


Despite the economic benefits of overseas remittances, OFWs continue to face certain disadvantages abroad. The vast majority of Indonesian migrant workers are domestic staff and earn lower salaries than their regional peers. In addition, language barriers and skill gaps have limited their employment options and increased cost burdens. In the case of Japan, although the country’s ageing population has created new opportunities for Indonesian nurses and caregivers, with a bilateral economic partnership enabling Indonesians and Filipinos to work in those roles, strict language requirements have kept Indonesians out of lucrative nursing positions. At the same time, migrant workers face high fees, both for recruitment and sending remittances home. For example, an Indonesian employed as a domestic worker in Hong Kong is likely to face $2708 in recruitment costs, equal to 5.4 months’ salary, according to the World Bank. In terms of remittances, fees for transfers to Indonesia average $5 per transaction, according to the bank, though they can vary significantly by country. Indonesia-bound remittances from Singapore, for example, cost an average of 5% of the amount being transferred, rising to as much as 10% when made in fiat currency. Although the Indonesian average is low for South-east Asia, the combined burden of remittance and recruitment costs accounts for a significant portion of wages.

Industry Expansion

Until recently Indonesia’s remittance industry has been dominated by banks and exchange houses like Western Union, Ria Money Transfer and MoneyGram. However, banks have rapidly expanded their remittance business in recent years. Bank Rayat Indonesia (BRI), for example, handled 1.86m remittance transactions in 2012, a 120% increase over 2011, while Bank Negara Indonesia (BNI) recorded 2.4m transactions worth a combined $74.2bn, up 8% y-o-y.

Industry growth accelerated in 2013 when the country’s central bank, Bank Indonesia, announced it would allow banks to outsource deposit and withdrawal functions to third-party agents, thereby enabling banks, telecoms companies and hybrid models to provide basic services like account opening, deposit taking, cash withdrawals and money transfers. These agents are no longer required to hold a specific remittance licence, though they are obliged to work exclusively with one partner during an initial launch phase. In July 2013 BNI partnered with the owner of the minimarket chain Alfamart to provide remittance services at any of Alfamart’s 5000 locations. This followed successful partnerships with state-owned postal firm Pos Indonesia, rural banks and regional development banks as paying agents. BNI reported 16.2% growth in remittance transactions in 2013, for a total of 2.3m transactions worth $86.3bn. BRI, meanwhile, reported that total remittance transactions handled expanded by 42.5% in 2013 to reach 2.65m, for a total value of $21.87bn. In August 2014 HomeSend, a joint venture between MasterCard, eServGlobal and BICS, announced it had inked a deal with telecoms operator Indosat to make remittance services available to its 60m subscribers in Indonesia. Indosat’s Dompetku platform will enable users to send and receive funds to and from payment cards, mobile money accounts, cash outlets and bank accounts, with over 24,000 Dompetku locations.


Perhaps most promisingly for OFWs, remittance prices could see a significant drop thanks to the growing prominence of Bitcoin – a digital currency that uses encryption techniques to regulate currency generation and verify funds transfers, operating independent of a central bank. In January 2015 Bitcoin’s exchange house Bitspark announced it had expanded the world’s first end-to-end Bitcoin remittance service, operating between Hong Kong and the Philippines, into the Indonesian market. Under a Bitcoin remittance system a transfer, known as a rebittance, occurs when the sender exchanges their money for Bitcoin. For its new Hong Kong-Indonesia service, Bitspark opened a stall in the central business district of Hong Kong, allowing users to convert their Hong Kong dollars into Bitcoin, after which point Bitspark coordinates with its Indonesia partner, Artabit, to send the funds to Indonesia within 24 hours. Recipients can pick up the money, which has been converted into local currency, either at a bank branch or post office. Rebittances offer several advantages over traditional remittance services. Transfers take place more quickly than the average three-day wait time for conventional agencies and, most significantly, Bitspark charges a flat fee of HK$25 ($3.22), compared to the percentage commission charged by traditional firms. According to Bitspark estimates, rebittances could significantly reduce global remittance fees, from $47bn in 2014 to just $5bn.


While the proliferation of new remittance services bodes well for OFWs and their beneficiaries, the long-term stability of the industry has been called into doubt due to a government drive to end the practice of exporting low-cost labour. In February 2015 President Joko Widodo announced the country would halt migration of female domestic labour, instructing the BNP2TK1 to formulate a strategy to implement this policy. This came earlier than expected, with previous government statements indicating plans to stop sending domestic workers abroad beginning in 2017. The prevalence of undocumented workers, coupled with widespread reports of worker abuse and unscrupulous recruitment agencies, led Widodo to expedite the plan.

Skilled workers are exempt from the ban, and there have been some indications that training and development programmes could help to upskill domestic workers. In November 2014 Hanif Dhakiri, minister of the BNP2TK1, told local press that Indonesia could professionalise domestic labour into a formal job.

This is welcome news for the remittance industry, and offers significant opportunities for providers of employee training programmes in Indonesia. Despite the push to attract individual customers, many banks report that remittance services are dominated by corporate transactions. Even Bitspark has reported that growth in its services is being driven more by corporations than individuals, as they transfer funds on a more regular basis and in higher volumes. Although the government’s long-term goal is to keep millions of Indonesians gainfully employed at home, corporate remittances and the sizeable existing OFW population should help to keep the industry stable, at least in the medium term.