Community economic activities cannot be separated from the role of banking. Therefore, banks must continue to innovate in order to be able to fulfill all these economic activities.
Like now, digital banks are starting to emerge which are more flexible, easier, and faster than conventional banks.
Even though its role is very important, there are still many people who do not understand the difference between banking and a bank. Yup, banking and banking are two different things.
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So, what are these differences? Let’s discuss further together. But before that, you should know the meaning of banking first.
Definition of Banking
Based on Law Number 10 of 1998, a bank is defined as a financial intermediary institution whose job is to collect and distribute public funds in order to improve the standard of living of many people.
Meanwhile, banking, according to Law no. 10 of 1998, means
“everything that has to do with the bank. Starting from institutions, business activities, to the ways and processes of carrying out business activities.
According to the Financial Services Authority (OJK) a bank is a financial intermediary institution that connects parties who have excess funds with those who need funds.
Therefore, in practice the bank will collect funds from the public in the form of savings, time deposits and demand deposits. The funds raised will later be channeled back to people who need funds in the form of credit or other types of loans.
So it can be concluded that what is meant by a bank is a business entity, while banking is an activity or operational activity carried out by a bank. As explained by Julius R. Latumaerissa in the book Banks and Other Financial Institutions Theory and Policy.
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History of Banking in Indonesia
After knowing the meaning of banking and bank, you should already understand the difference between the two. Furthermore, you also need to know the history of banking in Indonesia so that you understand what the bank’s journey is like in this country.
The history of banking in Indonesia began long before independence, in 1746 to be precise. At that time, the VOC established De Bank van Leening, a bank used to facilitate their trading activities in Indonesia.
Unfortunately, the operational activities of this bank did not go well so it had to go out of business. So did the VOC give up? Of course not.
Six years later, the VOC established De Bank Courant en Bank van Leening–which ultimately met the same fate as the previous bank.
Around the end of the 18th century, the VOC had been taken over by the Dutch government. During this period, more banks have sprung up.
Starting from Bank De Javasche, Nederland Handles Maatschappij, Hulp en Spar bank, De Post Poar Bank, and also Algemene Volks Crediet Bank.
Of all that, De Javasche Bank managed to be the most successful and continues to grow. This is the embryo of the Central Bank in Indonesia.
The Dutch government established De Javasche Bank and immediately monopolized the circulation of money in Indonesia.
Some of the tasks carried out by this bank range from issuing paper money and short-term notes, being a government cashier, discounting money orders, to being a clearing center and depository of foreign exchange funds.
From here, along with the development of the Indonesian economy, several foreign banks began to operate. Starting from Bank Australia and China, Hongkong and Shanghai Banking Corporation, The Chartered Bank of India, Taiwan Bank, Mitsui Bank and other Chinese banks.
Prior to World War II, the Dutch East Indies Government then liquidated three Japanese banks. However, when Japan already controlled Asia Pacific, British, Dutch and Chinese banks were liquidated by them.
The goal is that they can control their finances with just one bank, namely Bank Rakyat Indonesia, which is run by Indonesian sons and daughters.
After independence, De Javasche Bank was operated again and had a function as a central bank, although it was still in the form of a private business entity whose shares were partly owned by foreigners.
De Javasche Bank was only successfully nationalized in 1951 through Law Number 24. Two years later the Basic Bank Indonesia Law was issued which was contained in Law Number 11 of 1953 to facilitate the implementation of monetary policy and other economic policies.
After enacting the Basic Law on Bank Indonesia, the Government of Indonesia finally formalized Bank Rakyat Indonesia as the first government bank.
During the early stages of its journey, Bank Rakyat Indonesia had stopped operating and was only able to return to its functions after the Renville Agreement was formed.
In 1960, Bank Rakyat Indonesia, Bank Tani-Fishermen, and the Nederlandsche Maatschappij were merged into one under the name of the Farmers and Fishermen Cooperative Bank. Five years later, Bank Negara Indonesia was formed through Presidential Decree (Penpres) No. 17 of 1965.
Then, during the Round Table Conference, the Government of Indonesia and the Government of the Netherlands agreed to change the function of Bank Negara Indonesia from a central bank to a commercial bank.
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Banking Principles
If you have ever participated in an arisan in class or at home, you must know that people who hold money have the ability to look after that money. In simple terms, this principle is also applied in banking activities.
1. The Principle of Trust
Banks work funds that are deposited by the public. That is, people trust the bank to manage the funds they have. Therefore, banks must maintain and also maintain this trust in various ways, for example by conducting transactions carefully and thoroughly, or conveying information about banking to the public openly.
The precautionary principle means that banks work according to calculated and tested procedures so that the interests of customers are always protected. Therefore, all transaction activities must follow the laws and regulations that apply in the banking world.
3. Confidentiality Principle
The principle of confidentiality means that the bank will work by keeping everything related to customer deposits confidential. If a confidentiality guarantee has been stated, then the customer will feel safe in saving his funds at the bank.
4. Know Your Customer Principles
The last principle is the principle of knowing customers. The bank will work by knowing the customer’s identity, observing and monitoring all transaction activities and reporting if you see any suspicious transactions. This principle is important to understand in order to minimize risk opportunities that can harm customers.
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Banking Types and Functions
Banking Types
1. Central Bank
The Central Bank is a financial institution that has the responsibility to maintain the stability of currency exchange rates. The central bank in Indonesia today is Bank Indonesia.
Bank Indonesia has the main objective to maintain and maintain the stability of the value of the rupiah currency.
In practice, the stability of this currency can be seen from the maintained foreign currency exchange rates as well as goods and services.
Bank Indonesia operates based on Law no. 3 of 2004. In this law it is explained that BI aims to establish and implement monetary policy, maintain and regulate the payment system, supervise and regulate commercial banks.
With the Law no. 3 of 2004, Bank Indonesia as a government institution can grant business licenses to commercial banks and rural credit banks.
In addition, Bank Indonesia also needs to pay attention to the requirements that must be met and monitor competition among banks in Indonesia.
Then Bank Indonesia must also pay attention to the saturation level of the number of banks in certain areas and make national economic development equitable.
As the central bank, Bank Indonesia is given the authority to distribute credit liquidity, regulate money in circulation, and control inflation. This authority is considered vulnerable because it can be intervened by anyone, even by the government itself.
Aside from being the central bank, Bank Indonesia is also the Lender of the Last Resort or a liquidity facility provided to financial institutions in response to turmoil that could lead to an increase in demand.
2. Commercial Banks
Commercial Banks based on Law no. 10 of 1998 is a bank that conducts business activities conventionally or sharia principles which in its activities provide payment traffic services.
Therefore, commercial banks must have confidence in the analysis, ability, and ability of customers to pay off debts in accordance with applicable agreements. As stated in article 8 of Law no. 10 of 1998.
Commercial banks also need to have and implement credit and financing guidelines based on Bank Indonesia regulations. In article 10 of Law no. 10 of 1998 states that commercial banks can cooperate with Bank Indonesia and the government to carry out programs to improve people’s living standards through cooperatives, small and medium enterprises.
In addition, commercial banks can buy part or all of the collateral through an auction or not through an auction.
Commercial Banks have legal forms in the form of Limited Liability Companies, Cooperatives and regional companies. The establishment of a commercial bank can only be done by Indonesian citizens or Indonesian legal entities. If there are foreign nationals who want to set up a public bank, it must be done by means of a partnership.
Broadly speaking, commercial banks are divided into two types, including foreign exchange commercial banks and non-foreign exchange commercial banks.
Commercial foreign exchange banks, for example, are Bank Bukopin, CIMB Niaga, BCA and the like. Meanwhile, non-foreign exchange commercial banks, for example, are Bank Panin Syariah, Mayora, BCA Syariah and the like.
3. Rural Credit Banks
People’s Credit Bank in Law no. 10 of 1998 has the meaning that is a bank that conducts business activities conventionally or based on sharia principles. In its operational activities, this bank cannot provide payment traffic services.
That is, Rural Banks that carry out financial business activities based on sharia principles, may not carry out these activities according to conventional principles. Vice versa.
Meanwhile, in terms of financial activities, Rural Banks are not much different from commercial banks. Examples include collecting public funds and channeling them back to the community.
It’s just that Rural Banks cannot provide insurance, foreign exchange, or accept demand deposits. According to data from the Financial Services Authority, currently there are approximately 1,545 Rural Banks in Indonesia, such as PT. BPR Nusantara, PT. Business Fund BPR, PT. BPR Pesona Letris Pratama.
One of the history of Indonesian banking which is still Islamic banking. Then, what is the history of Islamic banking in Indonesia? To find out more about this information, you can get it in the Indonesian Sharia Banking book.
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Banking Function
The main function of banking is to collect and distribute public funds. That is, the bank is tasked with being an intermediary between parties who have excess funds and those who lack funds. But besides that, there are still several other banking functions, including:
1. Money creation
The first function is the creation of money. The money created is demand deposits or a means of payment through a clearing mechanism. With this function, commercial banks have a position in implementing monetary policy.
In addition, the central bank can also increase or decrease the amount of money circulating in the community by influencing the ability of commercial banks to create demand deposits.
2. Support Smooth Payment Mechanisms
Another function is to support smooth payment mechanisms. This function relates to services offered by commercial banks regarding payment mechanisms. Examples include money transfers, clearing, credit, deposit acceptance, cash payments and convenient and easy payments such as electronic payment systems.
3. Collection of Community Savings Funds
Public savings funds at banks consist of savings, time deposits, certificates of deposit, current accounts and the like. Deposit funds that have been collected by the bank will later be channeled back to those who need them in the form of credit.
4. Supporting Smooth International Transactions
The presence of a bank is indispensable in facilitating and supporting international transactions, whether in the form of goods, services or capital. This is because there are often transaction difficulties between the two parties from different countries caused by distance, geography, culture and the monetary system.
5. Storage of Valuables
One of the services offered by banks is the storage of valuables. The whole community can store valuables such as money, jewelery and the like in a box provided for rent, or known as a safety box.
With the rapid development of the economy, many banks are expanding their services by being able to store securities or securities.
6. Provision of Other Services
The last function is the provision of other services that you often use at this time, for example, such as paying for electricity, telephone, sending money through an ATM, paying employee salaries by using other services from the bank.
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The Role of Banking in the Economy
Banking has a very important role in the economy of the country and society. In addition to collecting and distributing funds, the bank’s role is to provide convenience in conducting financial transactions so that they can run quickly, effectively and efficiently.
In addition, there are still several banking roles in the Indonesian economy, namely:
1. Supporting the economy
Through lending, banks can help increase investment and economic growth in Indonesia. In this case, the role of banking is to help finance small and medium enterprises which are important economic resources.
2. Financing economic development
Banking has an important role to help the government finance every infrastructure project in order to increase economic development. Here banks play a role by purchasing state-owned securities, as well as providing loans to the government.
3. Helping people overcome financial problems
Banking can help people overcome their financial problems through financial products such as savings and time deposits. With these products, banks ensure that the security of public funds is guaranteed.
4. Helping the community meet the needs of life
Furthermore, banking plays a role in helping people meet their needs. Examples include buying a house or a motorized vehicle. You do this by holding mortgage products and motor vehicle ownership.
5. Increasing public access to financial products and services
Banking has an important role in increasing public access to financial products and services. This is done by expanding the network and preparing financial products that can be easily accessed by the public.
Examples include creating internet banking and mobile banking applications that can be accessed anytime and anywhere without having to come to a branch office first.
6. Support other economic sectors
Finally, banking has an important role in supporting other economic sectors such as industry, services and trade. In this last role, banks can channel credit and financial products that can help finance the activities of these sectors.
Thus the discussion about banking to its role in the economy of a country. Hopefully all the discussion above is useful for you.