Financial institutions are a forum that provides financial product facilities and plays a flow of money in the economy. The basic operational activities of financial institutions are collecting funds from the community and channeling them back to the people who need these funds.
In addition, financial institutions also become intermediaries for capital owners who want to channel their funds in the capital market or debt market so that funds can grow again. This is known by the public as investment, where this financial action is considered more profitable than just saving it.
Some examples of services from the most familiar financial institutions are saving funds as savings and providing a number of loans.
Security of Financial Institutions?
All financial institutions in Indonesia have a legal umbrella that is regulated in government regulations. That way, all the practices of its activities will be safer. The public also does not need to worry about entrusting their money stored or managed by financial institutions.
Plus there is supervision from the Financial Services Authority (OJK). It is indeed an obligation for OJK to oversee all financial institutions except cooperatives. Because cooperatives are separate financial institutions and have their own responsibilities to the Ministry of Cooperatives.
In carrying out its functions, OJK carries out supervision based on the location of the head office of each of the financial institutions. For example, for the North Sumatra Bank and People’s Credit Bank which has a head office there, it means that the OJK is the representative of the North Sumatra province.
Types of Financial Institutions
There are many financial institutions in Indonesia which are divided into two categories, namely banks and non-banks. Based on the Basic Banking Law No. 23 of 1998, the types of bank financial institutions consist of:
Bank Financial Institutions
These financial institutions are generally tasked with being responsible for the monetary policy of a country. In carrying out its duties and responsibilities, the Central Bank has special authority regulated in the Law of the Republic of Indonesia.
Starting from maintaining the stability of the currency value, stability of the banking sector, and the overall financial system. In Indonesia, the role of the Central Bank was given to Bank Indonesia (BI).
Commercial bank is a bank that conducts business activities conventionally and or based on Sharia principles. One of the main functions of banks is to raise funds from the public.
This activity is carried out by opening various savings products, deposits, current accounts or other forms of savings. The goal is that people are safer in saving money. With the existence of commercial banks, those who need loans can also be obtained through the credit or loan system.
Various commercial bank services also facilitate the public when they want to make payments or purchases. For example, payment of electricity and telephone accounts through banks. Thanks to these services, payment flows have become clearer and safer.
The presence of Bank Perkreditan Rakyat was originally intended for people in remote areas who have not been maximally reached by commercial bank services.
In terms of activities, rural banks raise funds from the public in the form of deposits in the form of time deposits, savings, or other similar forms. This bank financial institution is more limited in its business processes because it does not provide services in payment traffic.
(Also read: 4 Things This Financial Problem Can Make You Bother If Not Observed While Young)
Non-bank financial institutions
Then there are also non-bank financial institutions or abbreviated as LKBB. Similar but not the same, LKBB is an agency that collects funds from the public by issuing securities, then distributes them to finance investment companies that need loans.
This non-bank financial institution provides loans for everyone who needs capital goods such as cars. Even though you can use all the facilities and uses of the goods, but before payment is paid, the rights of the goods are still the leasing party.
With the help of leasing, companies can obtain capital goods for operations easily and quickly. After the lease is complete, the company can buy capital goods or return it at the end of the lease agreement period.
Pegadaian is a government-owned public company (BUMN). As the name implies, pawn shops have a unique mechanism. The community can pawn the goods with a minimum value of Rp. 500 thousand, and then even that amount of money can be obtained.
Some items that are often used as collateral for this mortgage are gold jewelery to motorcycle or car ownership certificates.
An insurance company is a non-bank financial institution that collects funds through premium withdrawals or a number of funds each month for a certain period of time, in accordance with the agreement of the two parties listed in the insurance policy.
When there is a risk to the customer, then he will get a claim for compensation in the form of funds whose amount varies depending on the amount of the premium.
Furthermore, there is a capital market which is a place for buying and selling long-term securities. Through this non-bank financial institution, companies that seek funds will sell securities such as stocks and bonds to get funds from investors.
And corporate and individual investors will buy shares through securities companies. In Indonesia, previously there were two trusted stock markets namely the Jakarta Stock Exchange and the Surabaya Stock Exchange. Now it has been merged into one, named the Indonesia Stock Exchange which is based in the Sudirman SCBD complex.
Saving and loan cooperative
Then there are savings and loan cooperatives which are non-bank financial institutions that lend funds only to their members.
The conditions for applying for a loan are easy, one only needs to fill out a loan form and attach a photocopy of KTP, salary slip, electricity bill, and collateral. However, what is provided by savings and credit cooperatives is generally greater than banks and pawnshops.
New! Digital Financial Services, What Is It Like?
In addition to shopping facilities that are increasingly facilitated by the presence of e-commerce, it seems that financial services do not want to be left behind.
As fintech, many financial services are now helping to bring technological sophistication into each of its activities. Some start from the transfer process, borrowing money, buying insurance, to buying and selling shares, all of which can be done online.
This digital financial service not only makes it easy, but is also estimated to be able to increase Indonesia’s financial inclusion. In 2025, some bank retail businesses are even projected to be eroded by fintech.