History of Banking Institutions in Indonesia

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Banking institutions have a very important role in this era of modern life. Banking institutions, especially in Indonesia, have a crucial role in the national financial system. Because of the importance of the role of financial institutions, financial institutions need to be covered by legal tools such as laws.

As we know in history, Indonesian people initially used the payment system by barter so that there was no need for banking institutions. Of course you are curious, right since when there are banking institutions in Indonesia? To answer your curiosity, here’s the explanation.

Understanding Banking Institutions

Before entering into the discussion of history, we need to know what a banking institution is. Based on Law No. 14 of 1967 which was replaced by Law No.7 of 1992 article 1, Banking is everything that concerns banks, including institutions, business activities and ways and processes in carrying out their business activities. This is an understanding based on the law.

Financial institutions are all bodies that through their activities in the field of finance, withdraw money from and channel it into society. Meanwhile, according to the Decree of the Minister of Finance no. 792 of 1990, financial institutions are all business entities in the financial sector, where these institutions raise funds, distribute to the community and provide development investment costs. This financial institution can be either a bank or a non-bank.

History of Banking in Indonesia

Banking institutions that were present in Indonesia for the first time certainly cannot be separated from the dutch east indies colonial. Precisely in 1746, the VOC established De Bank van Leening to facilitate VOC trading activities in Indonesia. This is the first bank established in Indonesia.

Along the way, De Bank van Leening did not operate properly. Finally on September 1, 1752, De Bank Courant en Bank van leening was established. However, De Bank Courant en Bank van leening also did not manage to operate properly which ended in bankruptcy.

At the end of the 18th century, the VOC in Indonesia was taken by the Dutch royal government. The East Indies fell to the British after the reigns of Herman William Daendels and Janssen. History records there are several banks that have an important role in the Dutch East Indies. The banks are De Javasce NV, De Post Poar Bank, Hulp en Spaar Bank, De Escompto bank NV nationale Handles Bank, De, Algemenevolks Crediet Bank and Nederland Handles Maatschappij.

The Dutch bank that manage to develop and become the forerunner of the Central Bank of Indonesia is De Javasche Bank. De Javasche Bank was founde in 1828. The Dutch East Indies government gave a monopoly to De Javasche Bank to issue money where the distribution of money was handle by his own government. Since then, De Javasche Bank has been known as the bank of issue or circulation bank.

History of Banking in Indonesia

Although not yet a full central bank, De Javasche Bank has a function as a banker for the Dutch East Indies government. This is because De Javasche Bank only performs some tasks that can be done by the central bank. Some of the tasks carrie out by De Javasche Bank include, discounting money orders and short-term debt securities, issuing banknotes, becoming a government cashier, diverging foreign exchange funds and becoming a clearing center.

Over time and the development of the Indonesian economy, other foreign banks finally began to operate. Some of them are The Chartere Bank of India, Australia and China, Hong Kong and Shanghai Banking Corporation, Yokohama Specie Bank, Taiwan Bank, Mitsui Bank, China and Southern Ltd, and Overseas China Banking Corporation.

History of Banking in Indonesia

In the run-up to World War II, the Dutch East Indies liquidate three Japanese banks operating at the time. however, when Japan took control of Asia Pacific, Dutch, British and several Chinese banks were liquidate by the Japanese. At that time Japan only wante to control the entire finances on one bank. The bank is Bank Rakyat Indonesia, a bank operate by The Son of Indonesia.

After Indonesia’s independence, De javasche Bank began to operate again and function as a central bank. Although at that time De javasche Bank was still a private business entity and some parts of its shares were still owne by foreign hands. Finally in 1951, De Javasche Bank was nationalize under Law number 24 of 1951.

Since Indonesia’s independence and allies manage to defeat Japan, finally Dutch banks and foreign banks returne to operation. On January 2, 1946, the Governor General of the Dutch East Indies grante permission to reopen the Dutch bank in Indonesia. De Javasche Bank still operates as a central bank with a private business entity.

Finally in 1953 to provide ease of carrying out monetary policy and other economic policies, stipulate the Main Law of Bank Indonesia as state in Law no. 11 of 1953. The law was issue because it was given that De Javasche Bank is still incorporate as a Limite Liability Company and has not been able to freely implement economic policies.

History of Banking in Indonesia

In the following years, the Government of Indonesia inaugurate Bank Rakyat Indonesia as the first government bank in Indonesia. Bank Rakyat Indonesia briefly stoppe operating, but the bank operate again after the establishment of the Renville agreement. In 1960, the Farmers and Fisheries Cooperative Bank was forme. Bank Koperasi Tani and Nelayan is the result of a merger of Bank Rakyat Indonesia, Bank Tani Nelayan and Nederlandsche Maatschappij.

In 1946, Bank Negara Indonesia was establishe, domicile as the central bank. Yayasan Poesat Bank Indonesia was merge into Bank Negara Indonesia. Over time, the Indonesian government has strengthene the position of Bank Negara Indonesia. Finally, during the Round Table Conference, the Governments of Indonesia and the Netherlands agree to change the function of Bank Negara Indonesia into a commercial bank, which initially became the central bank.

Laws Governing Banking in Indonesia

Currently, the Banking Law in force is Law no. 10 of 1998, which is an amendment to Law no.7 of 1992. There are several articles that are amende such as the article on the licensing authority of the opening of bank offices. Initially the licensing authority was the authority of the Ministry of Finance, but eventually the authority was hande over by the central bank, Bank Indonesia.

A bank is a business entity that is different from other business entities or institutions. A bank is a profit-orient business entity. Banks are part of the national financial system and the national economic system. As a trust institution, banking is a pillar of the banking industry. The existence of banks is interrelate, if there is one bank that collapses, it will certainly affect the other bank.

Because of these conditions, over time bank development measures are carrie out by Bank Indonesia. Bank Indonesia even provides coaching duties to the Directorate of Supervision and Bank Development. Until the end of 1999, Bank Indonesia in addition to being grant monetary authority was also authorize as a Lender of the last resort. As a lender of the last resort, Bank Indonesia can provide credit in Bank Indonesia’s liquidity credit scheme and also Bank Indonesia Liquidity Assistance.

Over time, Bank Indonesia was place as an independent institution and did not distribute credit anymore. This is also state in the Bank Indonesia Law. However, until now, the community still does not understand the difference in the function of banks and cooperatives because the two institutions are both fund-raising institutions from the community.

Functions of Banking Institutions

Here are some of the functions that banking institutions have, namely:

1. As an Intermediary Institution

Banking institutions have a function as intermediary institutions. The intermediary institution in question is an institution that collects funds from the community in the form of deposits by providing deposits to the community. For example, such as Hajj savings, deposits, school savings and other savings.

2. As a Distributor of funds to the Community

Banking institutions in addition to being intermediary institutions also have benefits as institutions that distribute funds to the community in the form of loan products. These loans are also set by credit interest rates that are useful for boosting the country’s economic growth.

3. Helping the People’s Economy

Banking institutions can be an element that helps the people’s economy to overcome modern economic problems that are often face by business people.

4. As a Payment System

Banking institutions become payment system providers such as checking, checking, transferring money. Credit cards, clearing between banks and others, so that they can help in payments between business people.

5. As an Economic Activity Service Provider

Banking institutions become providers of services that are closely relate to economic activities. Bank services such as custody of valuables, bill settlement services and guarantee services.

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6. As a Development agent

Banking institutions become development agents. Banks have a duty as fundraisers. And fundraisers to the community which is very important for the smooth running of the real sector. These activities allow people to invest, as well as consumption relate to money.

Financial institutions become truste agents. The basis of the bank’s activities is trust. If the public wants to leave funds to the bank, of course, it must be base on trust.

Well, that was an explanation of the history of banking institutions in Indonesia. Hopefully it can be useful and increase your knowledge, yes!

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