Multifinance And The Indonesian Financial Industry
Economic activities in a nation require a substantial amount of finance to be able to work correctly. Every now and then, companies will likely purchase or rent some essential properties such as vehicles and other heavy utilities to support their operations. To make this happen, these companies will perform a transaction with a set of particular companies that operate in this specific niche. This set of companies are commonly called as multifinance (or leasing) companies.
Multifinance (or leasing) company is a company that operates by leasing funds to a debtor to perform a transaction of materials or services. In recent times, multifinance companies are vital to many business ventures such as micro, small, and medium enterprises (MSMEs) that rely on fund leasing activities to finance their daily activities. Usually, multifinance companies stand as their own standalone companies, although several notable banks can also have their version of multifinance programs and services.
Within the framework of the modern economy, multifinance companies operate under the essential financial services industry. Along with other crucial financial services such as banks, foreign exchange services, insurance and many others, multifinance companies occupy a vital position in the current economic system. As a form of major financing companies, multifinance companies’ benefits for MSMEs cannot be understated.
Even though banks and multifinance companies can issue and lease funds to their respective debtors and customers, both operate in different manners. While banks can retrieve cash funds directly from their debtors and customers (deposit-taking activity), multifinance companies cannot retrieve the deposits in this manner. Instead, they can only recover loan money from their customers in this regard (non-deposit taking activity). By doing so, multifinance companies would have to offer their funding to their customers before these funding could be used to provide products or services to the consumers consecutively.
Although banks can have their own multifinance services, these services are supervised directly under the Otoritas Jasa Keuangan (Financial Services’ Authority) of Indonesia. This is caused due to the vital role these multifinance companies play in the overall economic scheme. Many business ventures rely on these companies to buy, rent, or loan important materials for their own operations, so it is imperative for the government to directly supervise multifinance companies directly. Therefore, multifinance companies are obliged to follow any regulations that are made by the government to ensure the business ventures’ overall longevity.
One of the most common services from multifinance companies is the automobile market. Since the price of many automobiles tends to increase in each year, many MSMEs are trying to find alternatives to pay the cost of these automobiles gradually. Through multifinance companies, customers would only need to pay the down payment to the dealer, before the customers would have to pay the previously agreed interest rate of the automobile they have bought before.
Other than the automobile market sector, multifinance companies’ role has been expanded over the years. More MSMEs are utilizing heavy utilities more than ever in each year, and many of these ventures have cooperated with multifinance companies in multiple sectors. One of these sectors, investment financing, has become popular due to its role in providing finance for nascent business ventures. Multifinance companies that finance the investment of these ventures will also provide funding in the project and infrastructure financing that are vital for the growth of these ventures.
Aside from the investment financing sectors, there are other sectors where multifinance companies can support MSMEs. Working capital financing sector is important for ventures whose spending need to be replaced with financial support after these companies concluded a single business activity cycle. Multifinance companies can provide a substantial amount of working capital financing to these ventures based on the previously agreed terms under OJK’s supervision. In addition, multifinance companies may also support project or infrastructure financing of various government programs such as Kredit Usaha Rakyat (People’s Business Credit) and many others.
Finally, the role of multifinance companies in the current Indonesian economy cannot be merely understated. Many business ventures from MSMEs to private corporations have worked together with multifinance companies to finance and support their daily economic activities. Multifinance companies’ particular nature has contributed to its overall popularity to many Indonesian business ventures, where they view the multifinance sector as one of the means to ensure their business’ longevity in the long run.