Definition of Financial Board, Functions, Types, and Benefits

Definition of Financial Board – Reader friends, what comes to your mind when you hear the term Financial Board? Banks must be one of the financial institutions that come to mind, right?

More than that, do you know that the Financial Board is actually not only limited to banks. However, there are also various other forms.

The financial institution itself includes various business operations in the financial services sector which include banks, trust companies, insurance companies, brokerage companies, and investment traders.

In Indonesia, the Financial Board is divided into two groups. First, there are Bank Financial Institutions and the second group is Non-Bank Financial Institutions, such as insurance, pawnshops, pension funds, mutual funds, and stock exchanges.

In general, the Financial Board is very necessary in the modern economy because of its function as a mediator between groups of people who have excess funds and those who need funds. The Financial Board can serve many people in various ways.

Because financial operations are an important part of any economy. Both individuals and companies rely on the Financial Board to conduct transactions and investments.

Therefore, the government considers it important to supervise and regulate Banks and other Financial Institutions. Because the role of the Financial Board is very important and is an integral part of the economy. Historically, the bankruptcy of a Financial Institution can also cause panic.

In the Financial Board, we can find a wide range of product and service offerings for individuals and businesses. The specific services offered vary greatly among the various types of Financial Institutions available.

Of course, the most famous Financial Institution is the Bank, which is the first group of Financial Institutions to accept deposits, offer giro account services, make business, personal, and mortgage loans. In addition, the Bank offers basic financial products, such as certificates of deposit (CD) and savings accounts for individuals and small businesses. Banks are where many people do their banking activities.

Meanwhile, among other Non-Bank Financial Institutions. One of the most well-known institutions is an insurance company. Insurance is also available for individuals and corporations. Insurance itself is one of the oldest financial services in Indonesia.

Let us understand more about the Financial Board. Let’s take a look at the article below. Starting from its meaning according to experts, the function of the Financial Board, to its role in the economy.

Definition of Financial Board

The Financial Board is a business or institution in the field of financial services that operates by providing financial service facilities, collecting funds from the community, and channeling them back for funding to various financial activities that affect the way the economy runs. Not only that, the Financial Board also needs to rotate the flow of money in the economy by obtaining profit in the form of interest or percentage.

Business activities in the Financial Board are various, such as providing financial services, providing loans, capital participation, and so on. However, in its operations, the Financial Board only carries out one or two business activities at once.

Examples of fund collection processes carried out by Financial Institutions that are fairly conventional include, among others, the provision of fund storage services (savings) and examples of fund distribution process activities, namely the provision of loan (credit) services.

The establishment of a Financial Board must also follow the procedure according to the applicable Law. The Financial Services Authority and other institutions need to supervise the activities of various Financial Institutions. Strict supervision and regulation is required to create a healthy financial services business for the community.

However, there is still a lot more to understand from the Financial Board itself, you know. Here is the definition of Financial Board according to the experts.

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The meaning of the Financial Board according to the Members

1. Law No. 14 of 1967 article 1 (replaced by Law No. 7/1992) on Banking

Based on the Law, the definition of the Financial Board is a business entity whose activities collect funds from the community and channel them back to the community.

2. SK Minister of Finance RI No. 792 of 1990

Meanwhile, the meaning of the Financial Board according to the Decree of the Minister of Finance is all bodies whose activities are in the field of finance, collecting and disbursing funds to the community. Mainly to finance corporate investment.

3. Big Indonesian Dictionary (KBBI)

In KBBI, the Financial Board is a body in the financial field that is tasked with attracting money and distributing it to the community.

4. Financial Services Authority (OJK)

According to OJK, the Financial Board is an institution that collects funds from the public and invests them in the form of other financial assets. For example, credit, securities, giro, and other productive assets that are included in Bank Financial Institutions and Non-Bank Financial Institutions.

5. Abdulkadir Muhammad

The Financial Board is a business entity that has wealth in the form of financial assets. The wealth is then used to run businesses in the field of financial services, both providing funds to finance productive businesses and consumptive needs, as well as non-financing financial services.

Functions of the Financial Board

The Financial Board has various functions that are closely related to the daily life of the community. His presence has a good impact on community life, so it becomes more quality.

However, the function of the Financial Board itself is quite different, depending on the type of institution. Even so, here are some functions of the Financial Board in general. Both Bank and Non-Bank Financial Institutions.

1. Provide a security guarantee for money storage

The Financial Board that stands under Indonesian law, of course all its activities will be supervised and its business activities must be in accordance with existing rules. One of the rules is to provide moral and legal guarantees to customers so that they feel safe and believe that their funds are kept intact. It will then be returned when the due date arrives, for example for savings deposits.

2. Provide information to customers

People who use the services of the Financial Board must obtain complete information about the financial products they use. Through the Financial Board, customers can receive information that has been provided and knowledge as clearly as possible for their interests.

For example, when a customer wants to take out a KPR product, the bank must provide information about the KPR product from A to Z. So that the customer understands how the KPR system applies there and can follow it properly.

3. Launch the exchange of products that use credit and cash

The Financial Board also functions to launch product exchange services that include goods and services using credit or cash systems. For example, customers who want to own a house can make payments through KPR through the Bank.

4. As a transaction tool for all activities

The Financial Board also serves to provide transaction tools that can be used anywhere for a variety of needs. For example, such as inter-bank transfers, daily bill payments, up to payments for shopping.

5. Provide financing for businesses and consumptive needs

In this regard, the Financial Board functions to collect community funds and then rotate them back, through loan products available for financing according to customer needs.

The community can use this financing service as needed and must meet certain conditions first. For example, customers who want to make their business bigger, apply for a productive loan at the Bank.

Types of Financial Institutions

Based on their type, Financial Institutions in Indonesia are divided into two types, namely Bank and Non-Bank Financial Institutions.

To find out more about the types of financial institutions, Reader can read the book Banks and Other Financial Institutions by clicking the following link.

1. Bank Finance Board

Bank Financial Institution ( depository financial institution ) is a Financial Institution that provides banking facilities and services for the community. Good in storage, payment, and giving of funds.

Simply put, the Bank Financial Board is a financial intermediary institution established with the authority to receive and collect money deposits, lend money, and issue banknotes.

2. Non-Bank Financial Board

Non-Bank Financial Institutions ( non-depository financial institutions ) or Non-Bank Financial Institutions (LKBB) are financial institutions that carry out the process of raising funds by issuing securities.

In addition, the Non-Bank Board also provides various financial services and withdraws funds from the community either as a deposit or indirectly.

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Some examples of Financial Institutions that are not Banks, among others are leasing companies , insurance companies, venture capital companies, pension fund companies, securities exchanges, pawnshops, mutual funds, and others.

Examples of Bank Financial Boards

1. Central Bank

The Central Bank is responsible for stabilizing the monetary system in a country. Each country has a Central Bank. In Indonesia, the Central Bank that is relied upon is Bank Indonesia. Of course, Bank Indonesia must always ensure the value of the Rupiah currency is stable, in order to provide stability to the community’s economy as well.

2. Commercial Bank (General Bank)

Commercial Banks are also known as Public Banks, which are business entities that provide banking services to the community conventionally or with the Sharia system. Commercial banks provide financial services, such as savings, deposits, giro, mortgages, multi-purpose credit, and others.

3. People’s Credit Bank (BPR)

BPR is a bank that accepts savings in the form of term deposits, provides loans and other financial services to communities in remote areas. Therefore, BPR is usually in rural areas and other locations that are far from the center.

Examples of Non-Bank Financial Institutions

In addition to bank financial institutions, the following are examples of non-bank financial institutions that Reader can read more about in the book Banks and Non-Bank Financial Institutions (Theory and Application) by clicking the following link.

1. Insurance Company

In insurance companies, of course, they provide protection services to their customers. In order to get that protection, the customer is required to pay the premium according to the provisions. Customers can also get various kinds of protection, starting from soul protection, health-related protection, protection when traveling, and others.

2. Pawnshop

Pawnshops are Non-Bank Financial Institutions that provide credit with guarantees. People can get loans on the condition that they guarantee their property. Examples of property that can be guaranteed are jewelry, electronic devices, motor vehicles, and others.

3. Capital Market (Stock Exchange)

The capital market is also one of the main types of Non-Bank Financial Institutions. Through the capital market, customers can transact using securities, such as shares, bonds or bonds, to mutual funds.

From that transaction, the customer will later be able to reap abundant profits. To be able to enter it, customers must first register through securities or investment managers.

4. Savings and Loan Cooperatives

Cooperatives are Non-Bank Financial Institutions that provide savings and loan services to their members with relatively low interest, thus freeing the community from loan sharks and being able to manage money more productively.

Financial Board Benefits

From the several examples of Financial Boards above, of course all Boards that operate in the financial field have benefits for society and the economy.

1. Simplify transactions by being cross payment

The most important benefit of Financial Institutions is to provide convenience and security in financial transactions. For example, to cross daily bill payments, inter-bank transfers, money transfers abroad, to shopping transactions. Even the public can now make transactions easily through the banking application, so there is no need to come to the office directly.

2. Providing cash with ATM withdrawal

One of the benefits of the Financial Institution for the next community, namely the benefit of liquidity which means providing cash and guaranteed authenticity. The withdrawal of cash can be done at the nearest ATM.

3. Transferring assets for profit

The Financial Board is a body that can transfer financial assets for specific needs. For example, giving loans to other customers. The funds will always be rotated so that the Financial Board can survive or make a profit.

4. Relocation of income for use in the future

The Financial Board becomes a safe place for the relocation of customers’ income. Customers can also use funds at certain Financial Institutions for the future. For example, saved for retirement preparations or for children’s education.

The role of the Financial Board in the Economy

As an integral or inseparable part of the economy. Here is the important role of the Financial Board.

  1. Financial institutions such as the Central Bank have a role as printers of rupiah money which is used as a legal means of payment, with the aim of facilitating financial transactions between people in the macro economy of a country.
  2. The Financial Board of Commercial Banks has the duty to issue checks that are useful to facilitate transactions made by customers.
  3. The Financial Board can also act as a broker, broker, or dealer tasked to increase efficiency between both parties and customers.
  4. The Financial Board also plays a role in helping the channeling of funds from the household sector to borrowers, unlimitedly and without the knowledge of the fund owner. Transaction costs and information costs themselves are lower, compared to if the borrower has to search and do the transaction directly.
  5. The Financial Board also has a role to reduce the risk of loss that may be experienced by fund owners or savers. The loss in question is not paying back the customer’s savings, where this will not happen due to the Financial Board’s strategy in arranging various fund allocations.


From the explanation above, we can simply conclude that the Financial Board is a body that provides financial services that we need every day. Reader friends can also choose it according to their needs. In choosing a Financial Board, make sure to choose the best and legal one to facilitate various financial activities Teman Reader yes.

This is a commentary on the meaning of financial institutions , their functions, types, and benefits.