Definition, Example and Benefits of Finance Company
Finance companies is getting more popular in Indonesia with a lots of product and services their offer that financialy relevant with the needs of today’s society. However, do you really know the definition, example and benefits of a finance company?
If not, this article can be your guide to learn more about the information that you need. This review contains the definition, example, and benefits of a finance company that will give you all the information that you need. With this, you can understand the purpose and services that you need from this particular company.
Definition of Financing Corporation
Presidential Regulation Number 9 Year 2009 had regulated the definition of a finance company clearly. A finance company is a business that performs business activities such as leasing, consumer financing, credit card business, and factoring.
From here on, we can see how the definition and benefits of a finance company make it different from banking institutions. Finance company focuses on certain needs funding services, infrastructure costs or production business needs, which roles that banking institutions do not do.
Example of a Finacing Company
When we try to understand more about the definition, example, and benefits of a finance company, there are several functions of that company which you can see here.
Leasing refers to the financing of capital goods procurement. Leasing enables companies to procure goods or certain materials that they need to support their business. The purpose of leasing is to increase the business’ productivity rate and profit rate in the future.
2. Venture Capital
Venture capital-based finance company provides services in the form of equity capital or financing into a certain business in a considerable time span. Venture capital financing can take form in stocks, bonds, or similar financial equities. In this regard, a venture capitalist will perform equity capital inclusion for customers who require this service.
Read Also: Multiple Terms in the Multifinance Business
Factoring is a business that offers financing in the form of billing, purchase, and accounts receivable management in a shorter time span. In this context, the accounts receivable comes from corporations that are involved in domestic or international transactions.
4. Credit Business
Credit business is the most popular type of finance company. Befitting its name, credit card businesses can assist you to perform purchase transactions through their credit cards. You can do the payment by paying the price in installments. Several credit card businesses also provide cash loan withdrawals for customers who need them.
Differences between a Multifinance Company and a Bank
As mentioned before, multifinance companies focus on multifinance services, infrastructure costs, and production business needs. Meanwhile, according to Law no. 10 of 1998, a bank is a financial institution that collects funds from the public in the form of deposits and distributes them to the public in the form of credit or other forms to improve people’s living standards. By knowing their definitions, we already get an idea of the differences between a multifinance company and a bank.
Although multifinance companies and banks have some basic similarities, namely providing loans, there are several things that distinguish multifinance companies and banks from their source of funds, services, and products offered to their system and methods of distribution. Here are 6 differences between a multifinance company and a bank.
- Commercial bank: Sources of bank funds come from savings, time deposits, demand deposits, issuance of debt securities, and owner’s capital
- Multifinance companies: The funds used come from company owners, banks, and debt securities issuance.
- Commercial banks: The services provided by banks can take form in lending, payment transactions, and sales of investment products.
- Multifinance companies: In this company, their services include lending and payment transactions (some companies)
- Commercial banks: In banks, lending can be used for corporations, MSMEs, retail, and consumption.
- Multifinance companies: Loans can be in the form of business leases, consumer finance companies, business finance companies, and venture capital
Loan Distribution Risks
- Commercial banks: The risk of lending to these institutions is taken care of by the bank.
- Multifinance company: In this company, the risk is taken care of by the multifinance company.
- Commercial banks: Banks are supervised by government institutions such as the Financial Services Authority (OJK) and Bank Indonesia.
- Multifinance companies: Only supervised by OJK.
- Commercial banks: In this institution, funds are guaranteed by the IDIC.
- Multifinance company: There is no guarantor in this company.
Definition of Fintech
Currently, the use of technology, especially in the financial sector, has developed far beyond that came before. Various activities related to finance such as transactions, shopping payments, credit payments, and others are carried out through smartphones and internet networks. This opportunity is used by many new (startups) and old companies to increase their customer loyalty and get new customers. This is done by providing technology-based financial services to make it easier for their customers. In the financial sector, this company is called Fintech (Financial Technology).
Article 1 number (1) of Bank Indonesia Regulation Number 19 of 2017 concerning the Implementation of Financial Technology (PBI 19/2017) explains the definition of Financial Technology, namely the use of technology in the financial system that produces new products, services, technology, and/or business models as well as may have an impact on monetary stability, financial system stability, and/or efficiency, smoothness, security, and reliability of the payment system
According to Article 3 paragraph (1) Bank Indonesia Regulation No. 19/12/PBI/2017 2017 concerning the Implementation of Financial Technology (PBI 19/2017), fintech is divided into 5 types, including:
1. Payment System
Fintech companies are providers of payment services which include clearing, settlement, payment, and other payment implementations using mobile applications or other technologies.
2. Market supporter
Various information such as prices, features, and benefits related to a financial product are readily available for use by users as consideration before making a decision, for example to choose the most suitable financial product/service by comparing its advantages and disadvantages.
3. Investment and Risk Management
Users can manage their financial condition via the internet and smartphones without having to go to the bank directly.
4. Peer-to-peer (P2P) lending and crowdfunding
P2P is a lending and borrowing activity by parties who need funds with parties who provide funds through online services. Examples are loans, finance, and the provision of capital. P2P is often misunderstood as online loans from multifinance companies.
5. Other financial Services
other fintech operations that are not included in the categories above.
The obligations of fintech operators who have registered with Bank Indonesia are also regulated in PBI 19/2017 Article 8 paragraph (1), which include:
- applying consumer protection principles that are in accordance with the products, services, technology, and/or business models being carried out;
- maintaining the confidentiality of consumer data and/or information including transaction data and/or information;
- applying the principles of risk management and prudence;
- using rupiah in every transaction conducted within the territory of the Unitary State of the Republic of Indonesia in accordance with the provisions of the laws and regulations governing currency;
- applying the principles of anti-money laundering and the prevention of the financing of terrorism in accordance with the provisions of the laws and regulations governing anti-money laundering and the prevention of the financing of terrorism; and
- complying with the provisions of other laws and regulations.
Benefits of Financial Companies
The existence of a finance company clearly has benefits for various parties in need, be it corporations or individuals. Here are some benefits that you need to know as well to complete information about the meaning, examples and benefits of finance companies.
1. Make payments easier with the installment system
You can immediately receive your desired product or capital by paying them in installments. This form of payment enables you to balance your income with other necessity fulfillment at the same time.
2. Easy and fast application process
To be able to access the services of a finance company, you are facilitated with an easy and fast submission mechanism. The provisions applied are very concise and easy to understand. The process is also short, so you don’t need too long to get the goods or capital needed.
3. Have an affordable loan interest
The amount of loan interest from finance companies are varied and affordable. The set amount of the interest still refers to the interest rate from Bank Indonesia (BI). This is the reason why the price that you must pay will not be burdensome to you.
4. Offers time flexibility
For every financing application, you will be given options of repayment time scheme that can be adjusted with your financial capability. The longer the time that you need for the repayment, the smaller the number of installments that you need to pay.
Differences between Multifinance and Fintech
Many people think that all data lending activities from these two institutions are the same.
Here are some of the differences between multifinance and fintech, including:
- Sources of funds from multifinance companies come from owners, banks, and issuance of debt securities, while sources of fintech funds come from company owners and investors.
- Multifinance companies provides loan distribution, payment transactions (some companies). However, fintech is an intermediary between lenders and borrowers.
- Distribution of multifinance loans in the form of leasing, consumption multifinance, business multifinance, and venture capital. Meanwhile, fintech includes consumer finance and business finance.
- In multifinance companies, the risk is borne by the companies themselves, while in fintech, the risk is borne by the investor themself
From the differences above, multifinance companies and fintech do have different schemes, and they cannot be equated with each other. If fintech is a shopping mall that provides a place for sellers and buyers to meet each other, then multifinance companies are sellers who can manage and manage their own products and funds. This also allows opportunities for multifinance companies and fintech to collaborate with each other, where fintech is one of the activities and multifinance partners are funding partners.
Just make sure you use the services of a finance company that has received an operating permit from the Indonesian Financial Services Authority (OJK). A finance company with a valid license is ensured to have good credibility, including in maintaining your data, information, and transaction records because of the technological system used to store and protect your data.This is what we do at AdIns, where we present a core system to perform data management needed by finance companies, one of which it is.
With decades of experience in the Multifinance field, AdIns has been trusted by many finance companies in ensuring the successful implementation of the desired project