Functions of Non-Bank Financial Institutions That You Must Know

What are the functions of non-bank financial institutions that we need to know? This question is very reasonable to ask because there are still many people who do not understand the existence of non-bank financial institutions. In fact, some may only know of its existence after reading this article.

People often hear about banks as legal and safe financial institutions. Although it sounds foreign, in fact non-bank financial institutions or NBFIs can be found in the neighborhood where you live.

Some of the most famous examples of NBFIs are pawnshops or the capital market for stock transactions. Of course, you already know about these two institutions before. On this occasion, you will be invited to get to know more about non-bank financial institutions, from their understanding to the types and uses of non-bank financial institutions. Without further ado, let’s take a look at the information below.

What Is Non-Bank Financial Institutions?

A non-bank financial institution or NBFI is a business entity that aims to collect and distribute public funds. The tasks carried out by NBFI are actually almost the same as bank financial institutions. They both collect and distribute public funds.

You can see the difference between the two in the following points:

• Banks provide savings services, while NBFIs do not.
• Banks can issue banknotes, while NBFIs cannot.
• The existence of a bank aims to provide interest income, security, and convenience needed by the community. On the other hand, the existence of non-bank institutions has the aim of increasing income, enabling someone to buy goods, buying and selling securities, and so on.

Despite all the differences, both have an important position in maintaining the stability of the Indonesian economy. Their differences actually complement each other’s existence.

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5 Functions of Non-Bank Financial Institutions (NBFI)

It was previously explained that NBFIs have an important role in the Indonesian economy. If so, how does NBFI maintain Indonesia’s economic stability? You can find out by reading some of the functions it has below.

1. Collecting Funds

The collection of funds by non-bank financial institutions is carried out by means of securities transactions. Examples of securities in question are house certificates, vehicles (BPKB), stocks, bonds, and much more.

The collection of these funds has become the main task of NBFI as stated in the Decree of the Minister of Finance No.38/MK/IV/1972.

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2. Location for the Community’s Loan Application

Non-bank financial institutions are a place for people to apply for loans. Loans will be processed when the public provides goods or securities as collateral.

An example of this function is when people need quick funds to buy basic needs. They can get a number of loans by providing a cell phone or TV as collateral.

3. Location for Goods Credit

Non-bank financial institutions also function as a place for credit for goods. It can be said that NBFI provides credit procurement services for people who want to buy an item.

The goods purchased by the public are in the form of cellphones, vehicles, laptops, washing machines, and many more. The credit application process through NBFI is almost the same as a bank. Someone who applies for credit will be assessed for eligibility first.

Does the person have sufficient funds? Does the person applying for it have other expenses to cover? Those are some of the feasibilities that must be tested first.

If it is found that there are many dependents and the circumstances do not allow for credit, it is certain that the application will be rejected. On the other hand, if there are no dependents and the financial condition is stable, then the credit application has the potential to be accepted.

Remember that in giving credit there is interest that must be returned along with the loan money. So, make sure you have done the calculations regarding the monthly refund along with the interest.

Read Also: What is the Difference between Credit and Financing?

4. As a Capital Provider

Capital provision services provided by non-bank financial institutions are specifically intended for business actors, both MSMEs and the private sector. The capital to be given depends on each NBFI.

The capital provided came from two different sources, namely from within and outside the country. However, both can still be used by business actors. NBFI is an alternative place for business actors to get the capital they need.

5. As Financial Business Actors

You did not misread this last point. It is true that non-bank financial institutions can become financial entrepreneurs.

Some examples of financial activities that can be carried out are the establishment of a credit company, the establishment of a social security administering agency, and so on. This activity can only be carried out when NBFI has obtained permission from the Minister of Finance.

4 Types of Non-bank Financial Institutions

Here are some types of non-bank financial institutions in Indonesia.

1. Capital Market

The capital market is a place for buying and selling bonds, stocks, and other securities. Its current existence helps people to multiply the money they have. Buying and selling in the capital market can be referred to as investment or trading.

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2. Insurance Company

You must be familiar with insurance companies. Insurance companies try to raise public funds by selling insurance policies.

Later the money that has been collected will be given back to the community when they have an accident or illness as agreed in the initial agreement.

3. Pawnshop

Pawnshops are a place for people to get extra money for various household needs. As the name suggests, money will only be given when there are goods that are pawned by the community.

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4. Fintech

Fintech or financial technology is a platform that provides loan services for household needs, home renovations, or business capital. Of all the examples of non-bank financial institutions, fintech is one of the most chosen platforms because the application process is easy, fast, and without guarantees.

That’s important information about the definition, types, and functions of non-bank financial institutions that you need to know. Despite having many differences with banks, non-bank financial institutions also face various characteristics of potential customers.

Moving in finance makes people who work in it have to be extra vigilant against fraud. That’s why a high security system should be used.

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