Hi,, this is the material regarding financial institution in IDR.

2. TABLE OF CONTENTS
• DEFINITION
• FUNCTION OF FINANCIAL INSTITUTION
• TYPE OF FINANCIAL INSTITUTION
• BANKING INSTITUTION
• ROLES AND TASK OF BANK
• Types of Banks Based on Their Functions

3. FINANCIAL INSTITUTION
Institutions that perform the essential function of
channeling funds from those with surplus funds to
those with shortages of funds.

4. Unique Economic Functions Performed by
Financial Institutions

5. TYPE OF FINANCIAL
INSTITUTION
We can divide financial institution in two major parts
as following….
1. Banking financial company(BFCs)
2. Non banking financial company(NBFCs)
Banking institution can use banking instruments like
cheque ,draft ,pay order but non banking institution can
not use these instruments.

6. BANKING INSTITUTION
• A business entity that mobilizes fund from the
public in the form of deposits and channels those
funds to the public in the form of credit and/or
other forms in order to improve the living standards
of the common people
According to Act No. 10, 1998

7. ROLES AND TASK OF BANK
According to the Act No. 10, 1998
a. Mobilizing funds
Bank functions as the fund mobilizer from people through the business of the bank
b. Chanelling fund
The mobilized fund is then channeled to people who need fund. The chanelling
done through credit operation both actively and passively
c. Improving the living of standard of the society
Beside accumulating and channeling fund to people in the form of loan, bank can
also run other business, which could improve the living standard of the society

8. CENTRAL BANK
Types of Banks Based on Their Activities

9. CENTRAL BANKS
 A central bank is a public institution that possesses a monopoly on
printing the national currency, which usually serves as the nation's
legal tender.
 Central Banks also called is the circulation bank for its function to
provide credit to other banks (banker of banks)
 The objective of BI according to Mandate of Act No. 23, 1999 is to
achieve and maintain the stability of rupiah value

10. Main roles of Bank Indonesia to
stabilize Rupiah value :
1. Monetary control → intended to maintain price
stability and or economic growth
2. Banking regulation and supervision → intended
to guard banking system stability
3. Payment system settings → aims to develop
payment system and financial infrastructure.
4. The last provider of funds for commercial banks
which has liquidity difficulties in their daily
operations.

11. A. Central Bank has authorithy for formulating &
implementing monetary policy.
Monetary policy : policy that conducted by Central Bank to influence money
supply (JUB).
It’s authorithy consists of Quantitative monetary policy & qualitative
monetary policy.

12. Quantitative monetary policy
are designed to control the total volume/money
circulation indirectly in economy.
Quantitative Monetary policy R:
1. Open Market Operation
BI can influence the total of money supplies by
buying and selling government securities or other
financial instrument.

17. Open Market Operation

18. It’s authorithy consists of :
2. Establishing Discount Rate Policy
Discount Rate /interest rate policy =>the amount charged, expressed as a
percentage of principal, by a lender to a borrower for the use of assets. This
is used by BI to control money supply & economic activity rate.
During inflation, BI raise the discount rate to trigger Commercial
Bank to raise their interest rate for loan. Therefore, the quantity of
loan given would be reduced business people are reluctant to make
new loans for the high interest

19. Discount Rate Policy

20. It’s authorithy consists of :
3. Establishing New Minimum Reserve Requirement (RR)
(RR) => the minimum amount that a commercial bank must hold in liquid
assets.
To act money supply during inflation, BI has to increase the
minimum reserve for e.x. currently BI has policy that commercial
bank have 20% minimum reserve and now change to 30% to
make commercial bank couldn’t lend more money so that money
supply’s reduced.
WHYYYYY??

21. If BI didn’t increase the minimum reserve, Banks
have higher money for lending that customers
can borrow more, it can make money supply
increase and inflation become higher

22. Qualitative monetary policy :
focuses on regulating the quality and terms of credit extended by
financial institutions to borrowers.

23. 1. Selective Credit Control
The main objective of selective credit control is to assure that commercial banks
have given investment loan in accordance with the government’s objective. To
grant credit, they use analysis by 5C, 7P and 3R.
For example :
*) Provide loan for consumers to buy simple houses with low interest rate
*) Encourage loan for small traders
*) Providing easier terms of loans for small traders and home industries

25. PERSONALITY
PARTY
PURPOSE
PROSPECT
PAYMENT
PROFITABILITY
PROTECTION
7P in granting credit 3R in granting credit
REPAYMENTS
RISK BEARING
ABILITY
RETURN

26. 2. Rationing of Credit
It refers to fixation of credit quotas for different
business activities. The commercial banks can’t
exceed the quota limits while granting loans.

27. Banking businesses that are operated by Bank
Indonesia including:
Active Bussinesses are :
• Discounting draft letter (wesel dagang) And
credit letter (L/C)
• Buying and selling drafts, treasury bills, bonds,
etc
• Buying and selling precious metals
• Providing credit to banking

28. Passive Bussinesses of Central
Bank are:
 Savings in Bank’s current accounts
 Holding government’s cash
 Helping government in placing state government
bonds, government business and paying and
settling coupons
 Providing spaces for keeping valuable goods
 Giving guarantees to well insured banks

29. Conventional Bank
Bank in the business of lending & borrowing money based on
interest and provides services in the flows of payment.
Conventional bank are classified into :
•Commercial banks : (Rural Bank, Islamic Bank, commercial Bank)
•Online banks
•Investment banks

30. GROUP DISCUSSIONS
•Difference between BI & OJK
•Explain Bank of services below :
• Online banking
• Mobile banking
• Bill payment
• Money transfers
• Loans (overview)
•Show examples of how these services work
and their benefits.
•Difference between Online Banking &
Commercial Bank

31. RURAL BANK
bank that carries out its business activities conventionally
or based on Sharia principles without providing services in
payment transferring.
Rural bank (BPR) is prohibited from
providing demand deposit, foreign
exchange business and insurance.
Ex : PT. BPR Universal, PT. BPR Tunas Jaya
Global, PT. BPR Bintang Ekonomi Sejahtera

32. RURAL BANK (BPR) Activities :
•Gather fund from society in the forms of time
deposit, savings, and/or other forms equal to those.
•Give credit.
•Provide financing and fund placement based on
Sharia law and according to provisions stipulated by
Bank Indonesia.
•Place bank’s fund in the form of Bank Indonesia
Sertifikat (SBI, or Bank Indonesia promissory notes),
time deposit, deposit certificate, and/or savings in
other banks.

33. Islamic Bank
Bank which its activity based on syaria principles.
 all forms of interest are forbidden.
 The customer and the bank share the risk of any
investment on agreed terms, and divide any
profits between them.

34. Islamic Bank in Indonesia

35. Syaria Principles :
Murabaha or sale with profits: the borrower or the bank buys the goods or the
product from the supplier following the order of a customer to sell them to the
same customer with a profit margin fixed in advance.
The Mudaraba is a trust fund, it is a contribution to working capital. The bank
participate in a project by a capital injection. The project proponent provides
his work and can make a capital contribution. Profit sharing is agreed between
the parties, and losses are borne by the provider of the funds, unless there is
fault, negligence or breach of conditions accepted by the bank.

36. Musharaka is a investment partnership in which profit sharing
terms are agreed in advance, and losses are pegged to the amount
invested. Under the 'diminishing Musharaka' the Islamic version
of a mortgage, the bank and the customer purchase the property
together. The customer must make monthly payments to the bank
and pay a monthly rental fee, both based on the portion of the
purchase price the bank still owns.

37. Islamic Bank classified into 2 based on their
activity:
Syaria commercial Bank : provides services in
payment traffic
Islamic Creditor Bank (BPRS) : provides
financing transaction which consists of profit
sharing transaction and renting transaction in
the form of ijarah muntahiya bittamlik (leasing
agreement which ended with the transfer of
ownership of the object of the contract from the
lessor)

38. INVESTMENT BANKS
A special division of a bank or financial institution that aids
large and complex financial transactions for companies,
governments, and other entities
BNI, Citibank, Panin Bank, etc

39. INVESTMENT BANKS ACTIVITIES

40. TYPES OF INVESTMENT BANKING