Government-Owned Financial Institutions: Meaning, Goals, Benefits
Government-owned financial institutions are more than banks. See how bank and non-bank types are defined, what they aim to do and how they benefit you.
Ordinary people may often hear the term financial institution, but most immediately associate it with banks. Yet government-owned financial institutions are not only banks. This article therefore explains the meaning, goals and benefits of these institutions.
Definition of a Financial Institution
A financial institution is an institution or business entity whose activities relate to finance. It works by collecting funds from the public and channeling them back out. The institution earns its profit from a percentage or interest on that process. In practice, financial institutions come as banks and as non-bank financial institutions.
1. Bank Financial Institutions
Bank financial institutions are business entities that act as financial intermediaries, with the authority to accept and collect deposits of money. Banks can also carry out activities such as borrowing money and issuing banknotes or promissory notes. Bank financial institutions are further divided into three types (the central bank, commercial banks and rural credit banks, known in Indonesia as bank perkreditan rakyat or BPR).
2. Non-Bank Financial Institutions
Non-bank financial institutions also run businesses related to finance. But government-owned financial institutions of this type generally provide financial services on a depository or indirect basis. Examples of business entities in this category are insurance companies, pawnshops, stock exchanges, leasing companies and so on.
Goals of Financial Institutions
Based on the definition above, there are several goals behind establishing these institutions. Whether they are banks or non-banks, the goal is to collect funds from the public so that the funds are safer. Banks also channel the funds they collect into development and economic activity.
Besides that, banks provide capital assistance to the public or companies in the form of credit for business capital. Cooperatives provide savings and loan services to their members, while pawnshops lend to customers against valuables as collateral.
Benefits of Financial Institutions
As for the benefits, financial institutions have many functions and benefits. One is asset transfer, where the institution's assets are lent to other parties to be managed for a certain period. The funds come from public deposits.
Then there are the liquidity and income reallocation benefits of government-owned financial institutions. The liquidity benefit is the role of the institution that relates to its ability to obtain cash when needed. The income reallocation benefit is the role of the institution as a place to allocate funds so they can be used in the future.
That is a brief look at financial institutions in Indonesia, where there are many such institutions. One state-owned enterprise that is a financial institution is PT SMI (Sarana Multi Infrastruktur). PT SMI is appointed under the Ministry of Finance to support Indonesia's infrastructure development agenda. You can find out more at ptsmi.co.id.
