financialtreat – will explain about Get to Know More About Financial Institutions that you will get in the following article. Let’s look at this article carefully!
Almost all financial activities of people around the world cannot be separated from the role of financial institutions. This institution is the intermediary of people’s finances, namely those who need funds and those who provide funds. In addition to being an intermediary, this institution also has a big role in maintaining the stability of money circulation and the country’s economy, including Indonesia.
However, despite having such an important role, there are still many people who are not very familiar with financial institutions and even difficult to distinguish the types. Therefore, we will here explain what a financial institution is, its functions and types so that you can more easily recognize it. Here’s the explanation!
Getting to know financial institutions
If you hear the term about financial institutions, surely your mind will immediately be on the bank. In fact, there are various other forms of institutions that are also included in this institution, not only limited to banks. Therefore, this institution has two types, namely bank financial institutions and non-bank financial institutions.
Based on the Decree of the Minister of Finance of the Republic of Indonesia Number 792 of 1990, financial institutions are all bodies or institutions whose main activities are in the financial field. Starting from collecting to distributing funds to the community.
Financial institutions can also be interpreted as institutions that have assets in the form of finance and function to run businesses in the financial services sector. Whether it is as a funder to fund businesses, consumptive purposes, or as a non-funding financial service.
Simply put, this institution can be a fund raising body only, a fund distribution agency only, or both. By raising funds from the community and channeling these funds for financing purposes, these business entities can get benefits in the form of interest or percentages.
Functions of Financial Institutions
Do you know what financial institutions understand? If so, let’s also understand its function. As an institution engaged in the financial sector, here are some of its functions:
1. Fund Raising
The first function is as a fundraiser. Financial institutions issue a wide variety of valuable documents such as bond stocks and other financial claims. With this function, people can store their funds more safely and at least risk.
This savings of funds can be savings for the community and can be used in the future when needed. By providing services such as savings, deposits, current accounts, and credit, people can meet the needs of short- and long-term funds.
2. Fund Dealer
The next function is as an institution that distributes funds that have been collected to the community so that they can use it. It can also be for funding in the economic or development sectors in a certain period. It is through this function that financial institutions can manage and develop funds that have been collected from the community.
3. Lender
Financial institutions also function as business entities that provide loans to the public, especially financial institutions not banks, such as pawnshops. Of course, the provision of guarantees must be accompanied by the delivery of collateral goods, it can be in the form of goods or securities.
Generally, items used as collateral include electronic goods such as cellphones, laptops, refrigerators, computers, televisions, motorcycles, home certificates, and gold. While the guarantee of securities usually uses BPKB (Motor Vehicle Ownership Book).
This also applies to financial institutions not other banks, namely cooperatives, which provide savings and loan services to their members. The loan given interest is lower than borrowing money in the bank.
4. Facilitate Transaction Activities
This is one of the functions of financial institutions whose impact can be most felt by the community, namely the ease of conducting financial transaction activities. All financial-related activities become easier and more practical.
Especially in this digital era, many financial institutions are innovating, especially in terms of products and services. Financial transactions become super easy and anti-complicated with increasingly sophisticated features.
5. Liquidity Function
Financial institutions function as institutions that are able to provide cash at the right time for the community when needed. This function makes people no longer worried about the occurrence of a cash crisis in circulation.
6. Asset Transfer
Not only that, this institution also serves as an asset transferr. The trick is to give a loan of some funds to other parties to be managed within a certain period of time. And the source of the loan comes from the savings of the community in an institution.
Types of Financial Institutions
Furthermore, you also need to know what types of financial institutions exist in Indonesia. Of course, each plays a different role. For details, see the following explanation:
Bank Financial Institutions
As mentioned at the beginning of the discussion that broadly speaking, there are two types of financial institutions. One of them is a bank financial institution. This institution consists of several types of banks, including the following:
1. Central Bank
A central bank is a national institution or business entity that serves to maintain the stability of the prevailing currency value in a country. And in Indonesia, which acts as a central bank is none other than Bank Indonesia (BI).
This institution includes state institutions that are independent in nature. That is, the institution is free to carry out all its duties and authorities without interference from the government or other parties.
Therefore, it is not surprising that Bank Indonesia has a big role in maintaining the country’s economy, namely so that the value of the rupiah remains stable. Whether it is against objects, services or exchange rates.
2. Commercial Bank
The next type of bank financial institution is a commercial bank, which is an institution that intercesses between parties who provide funds and parties who need funds. This one institution also performs banking services, both using conventional and Shariah principles.
The activities carried out by Commercial Banks are collecting funds in the form of savings or deposits, providing loans or credit, and storing securities and valuables. In addition, commercial banks are also tasked with creating and issuing debt statements.
Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI), Bank Mandiri, BRI Syariah, and so on are a series of examples of commercial banks that you usually find in the region or domicile where you live.
3. People’s Credit Bank (BPR)
Based on references obtained by the OJK (Financial Services Authority) page that BPR or People’s Credit Bank is a financial institution that carries out business activities conventionally and shariah. In all its business activities, BPR does not provide services in the transfer of funds between the sender and recipient of funds.
The scope of activities and functions of BPR is much narrower than that of commercial banks. That’s because BPR is not allowed to receive deposits such as current accounts, forex activities, or insurance. This is the difference between BPR and commercial banks.
Financial Institutions Are Not Banks
In society, there are at least five types of non-bank financial institutions, namely as follows:
1. Pawnshop
A financial institution is not a bank that provides offers of money lending services to the public by including goods or securities as collateral called pawnshops. If you want to borrow money from this institution, you must hand over an item to be a guarantee (pawn).
Only then after you receive the loan money, you can redeem back the items you pawned. Of course with interest as an additional cost. This flower is the source of profit from the pawnshop.
Based on this explanation, the conclusion is that the main function of pawnshops is to carry out payment activities in the form of disbursement of funds to the community with a credit system. In carrying out its role, pawnshops are one of the institutions under the auspices of State-Owned Enterprises (SOEs).
2. Save and Borrow Cooperative
Savings and loan cooperatives are financial institutions that run businesses in the form of receiving deposits and loans. Like other types of cooperatives, savings and loan cooperatives also apply the principle of kinship in carrying out all their business activities.
Where does the source of savings and loan cooperative capital come from in running its business? First, it comes from basic deposits, mandatory deposits, and voluntary deposits from each member of the cooperative. And the second source comes from borrowed capital to cooperatives or other business entities.
3. Insurance Institution
The so-called insurance institutions are financial services institutions that offer insurance products, such as life insurance, education insurance, and so on. With the existence of insurance institutions, people can get guarantees or protection in the form of financial compensation if the insured risk really occurs.
4. Leasing
Leasing is a financing institution that rents goods to people who want to rent within the agreed time frame. If in the middle of the road the tenant is no longer able to pay, then the leasing company as the lessor has the right to take back the rental onion.
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5. Capital Market
Capital market is a means or place to meet institutions such as companies or other institutions that require funds from the community with the community that has funds to invest. These investment funds are usually used for business development purposes, expansion, business capital addition, and so on.
Business activities carried out in the capital market include trading or buying and selling stocks and other securities such as bonds, mutual funds, warrants, rights, debt statements, and other derivative products.
Well, that was the explanation for financial institutions. Hopefully it can be useful and increase your knowledge, yes!