Not all financial institutions are part of the banking industry, and many examples of non-bank financial institutions in Indonesia are also engaged in the financial world.
Non-bank financial institutions, which are abbreviated as LKBB, have various types of business activities, both financing and distribution of funds. LKBB is a business entity whose presence benefits the community, and its role is significant for the economy.
What is a Non-Bank Financial Institution?
Non-bank financial institutions (NBFIs) are business entities in the financial sector that have a license to collect and distribute funds to the public other than in the form of savings, current accounts, and time deposits.
The presence of LKBB in Indonesia has existed since 1972 and has various functions and roles as follows:
1. Raising Funds
LKBB has the authority to collect funds from the public and convert them into documents and securities.
2. Credit Procurement
Medium and long-term lenders, either to private or government-owned projects, LKBB also makes capital investments in temporary projects or companies until their shares can be traded.
3. Saving Money
Several types of LKBB are also an alternative to saving money apart from opening an account at a bank. The purpose of storage varies, and it can be to separate cash for various other essential purposes.
4. Loan Application
LKBB can also provide loans with collateral over your valuable assets. The LKBB will assess and give you a loan according to your asset’s worth. What must be considered is the amount of interest charged and the fine imposed if you cannot pay the loan installments within the agreed period.
5. Implementing Financial Activities
LKBB uses this function to stimulate industrial and economic development through the capital market. This activity requires the approval of the Indonesian finance minister.
Examples of Non-Bank Financial Institutions (LKBB) in Indonesia
The following are examples of non-bank financial institutions in Indonesia that have been operating for a long time:
Pawnshop or Pegadaian is one of the institutions whose existence is very close to the community. Pegadaian provides services for credit funds by pawning goods.
Consumers borrow funds by pawning gold, securities, and other valuables. The interest charged is relatively low.
2. Money Market
The following example of a non-bank financial institution is the money market, where one party can borrow funds from another party at a specific interest rate as an imbalance. The instruments used are deposits, Indonesian bank certificates, or securities.
3. Capital Market
Similar to the money market, this agency is also a place for buying and selling securities. The only difference is the timeframe; the capital market trades securities in the long term for > 1 year.
4. Saving and Loan Cooperative
Savings and loan cooperatives are an example of non-bank financial institutions that provide credit to the public (members or non-members) by collecting funds from cooperative members.
However, the interest charged by cooperatives to borrowers is usually higher than that of a bank or pawnshop.
5. Pension Fund
This agency provides storage services to ensure old age by employing active employee salaries every month while someone is still working. When it is time to retire, these funds will be returned to the community.
6. Lease Company
Better known as leasing, running a business by providing financing services with a rental contract system combined with purchases in installments. It can buy various goods, such as vehicles, electronic goods, etc.
7. Venture Capital Company
A business entity carries out financing or equity participation in a company within a certain period. Investments in this entity can be in the form of shares, and the profits are obtained from the results of operations.
8. Factoring Company
A factoring company is not as widely known as others. A Factoring Company is a financing business that buys or transfers receivables or short-term bills for a company for domestic or foreign trade transactions.
It is a business entity that works by protecting customers, which can be in the fields of health, travel, vehicles, education, or property.
It works by collecting funds from premiums paid by customers within a certain period following the agreement of both parties.
10. Financial Technology (Fintech)
The business activities carried out by fintech-based companies are crowdfunding (fundraising), micro-financing, to Peer-to-Peer (P2P) Lending. As the name suggests, these companies offer financial services through technologies and online platforms.
Those are various examples of non-bank financial institutions (LKBB) in Indonesia. LKBB is also one of the industries affected by digital transformation and needs to continue to innovate to provide financial services that are increasingly easier and needed by the people of Indonesia.
During 21 years as a business management consulting firm, Skha has helped various clients across industries, including LKBB, identify challenges and formulate targeted solutions for business continuity.
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Simbolon, Nelson. “10 Lembaga Keuangan Bukan Bank di Indonesia Beserta Fungsinya.” Ekrut Media, 14 Sept. 2021, https://www.ekrut.com/media/lembaga-keuangan-bukan-bank. Diakses pada 6 Juni 2022.