A case study on Indonesia’s OJK, Building Financial Stability (GC01500)
Acknowledgment
First of all, my love to my honorable parents who have contributed a lot since my childhood giving their support and finance. In addition, I would like to appreciate to my honorable supervisor how have guided me with advice, suggestion and effective feedback and direction. Finally, I would say thanks to my friends from whom I took help during this research study when I faced difficulties.
Executive Summary
The aim of this study is to analyze and evaluate the process and activities of OJK identifying the challenges and difficulties faced in its current operations. Then, the study will suggest the OJK how it can overcome the challenges and difficulties faced. Finally, this study shows how the knowledge developed through this study can be transferred to other companies. The key finding of this study come from several secondary data sources including the OJK website, several books and journals.
It is important for any countries Indonesia to bring financial stability. However, this is challenging to conduct all of the activities and services maintaining quality and integrity. This is because the influence of globalization, world economic volatility and other external forces impact significantly on the activities and services of any country and its banking sectors. In the same way, Indonesia, one of the Asian developing and growing countries, has been challenging to operate the banking activities and services properly. As a result, Indonesia established a sister organization, called Otoritas Jasa Keuangan (OJK), to overcome the challenges faced by its banking sector. Still, now the banking and financial sectors of Indonesia have been facing several challenges. Therefore, it has been a significant issue for OJK to conduct a study on the challenges faced by the financial and non-financial sectors of Indonesia.
Several models are used to analyze the problems faced by OJK, which are Value Chain Analysis Model, SWOT Analysis tool, Carroll’s Pyramid Model, John Kotter’s Eight Stages Model, McKenney’s 7’S Model, Red Ocean vs. Blue Ocean Model, Bowman’s Strategic Clock, Value Discipline Model, Maslow’s Needs Theory, Strategic Human Capital Planning Model, and Minzberg’s Management Role Model. The finding of these models and theories give solutions, recommendations, and action plans for OJK.
Finally, this study concentrates on how understanding, as well as knowledge achieved during this research, can be shifted towards Coca-Cola. The major models, as well as theories used to analyze Coca-Cola business, are Porter’s Five Forces analysis, Value Chain Analysis, PESTLE analysis as well as SWOT Analysis. Finally, knowledge achieved in this research on OJK is shifted towards Coca-Cola.
Chapter 1: Introduction
1.0 Introduction
It is important for any countries Indonesia to bring financial stability. However, this is challenging to conduct all of the activities and services maintaining quality and integrity. This is because the influence of globalization, world economic volatility and other external forces impact significantly on the activities and services of any country and its banking sectors. In the same way, Indonesia, one of the Asian developing and growing countries, has been challenging to operate the banking activities and services properly. As a result, Indonesia established a sister organization, called Otoritas Jasa Keuangan (OJK), to overcome the challenges faced by its banking sector. Still, now the banking and financial sectors of Indonesia have been facing several challenges. Therefore, it has been a significant issue for OJK to conduct a study on the challenges faced by the financial and non-financial sectors of Indonesia.
In this chapter, an overview of the research background is outlined in the first section. In the second section, the research problems are identified and discussed. In the third section, research questions, research aims and objectives are outlined. Then, the research rationale and research significance are discussed. Finally, the research structure is outlined.
1.1 Study background
Indonesia’s government took initiative to introduce a new organization, called Otoritas Jasa Keuangan (OJK). The key aim of establishing OJK is to bring the financial and non-financial institutions including banks and capital markets under a sing roof of supervision and regulation. The main activities of OJK are to monitor and supervise capital markets, NBFI, banks with the help of the Ministry of Finance and Central Bank of Indonesia. Since January 2015, OJK has been serving as the primary supervisor of MFI activities. One of the first steps to be taken by OJK will be to document the number of MFIs in the country in an effort to “soon develop mapping, a capacity building program, and legal frameworks for the institutions.” The cooperation agreement among the government agencies reportedly comes as a result of a failure of regional and city administrators to effectively supervise MFIs’ activities. In a word, OJK is replaced as the supervisory agency of the Indonesian financial institution and capital market. It is working in accountable, transparent, fair and ordered manners. In addition, it has been able to create a financial system that has been growing continuously in a sustainable way. Finally, it is protecting the interest of both communities and consumers (OJK, 2016).
1.2 Problem statement
Accounts and Finance
The case study discloses that the OJK should coordinate with the Bank of Indonesia (BI) to take initiatives for banking policies in some specific areas including derivative transactions, banking services, commercial loans, offshore funding, and foreign exchange. In addition, OJK should be more concerned about monitoring and examination of banks to ensure systemic stability and reduce the responsibility of the Bank of Indonesia (BI). OJK also needs to be more concerned about reducing duplication of supervision. OJK should take initiatives to protect consumers like took action worse faith, showed evidence of bank misconduct, and power to file civil suits on behalf of industry or consumers. In another word, OJK should give more concentration on creditor rights focusing on consumer and small and medium-scale enterprises (SME).
Strategic management
OJK has been taking several initiatives to improve high capital, solid profitability, and comfortable levels of liquidity. It has developed a number of methodologies and supervisory frameworks which generally meet global manners and norms. However, OJK has limitations in a number of cases. First, it has failed to monitor and take actions against the bank exhibit rising credit exposures to both SMEs and retail sectors. Secondly, it has failed in dealing with the banks that are creating problems. Thirdly, OJK should promote the actions of the Bank of Indonesia to sort out the problem of weak banks along with making effective transparent. In addition, the issues related to loan provisioning rules, capital, home-host supervision should be sorted out and addressed. OJK also should focus more on better assessment of systemic risk, improve oversights, risk losing competencies, and entails significant risks. The present and existing supervisory and regulatory framework must be strengthened. Finally, the legal framework should be enshrined, the financial position of the Bank of Indonesia should be stronger, and the process should be more transparent.
Organizational behavior
OJK takes long and several steps in the selection process of OJK’s board of commissioners, which may create conflicts. It can be the best way of nominating a single candidate who has integrity, wider experiences in the global finance and financial markets. Additionally, some business people complain that OJK does not present the private sector adequately. This is because there is no place for any representatives from the banking industry. OJK should give more concentration on its activities and coordination with other stakeholders and agencies. For example, the Ministry of Finance sorts out any conflicts between the Bank of Japan and FSA. In addition, conflicts maybe arise because of different knowledge and understanding of policy goals as well as the instruments applied in the implementation process. For instance, when the Bank of Indonesia (BI) increases reserve requirements to control inflation, it might affect an individual’s bank balance sheet causing banking stress. In a word, there is a dilemma between monetary stability and financial stability.
Human Resource Management
OJK may face different problems regarding its human resources. First, the staff in OJK has come from different places including BI and MOF. A large number of staff have come from BI. In this case, OJK might face difficulties in gaining full commitment from the staff. Secondly, OJK needs to put lots of effort and time with a huge cost to implement two-year assignments for the staff come from BI and other employers. In addition, the pay gaps between staff may create tensions within OJK. There might be a lack of full staff commitment because of pay variation It is important for the OJK to improve staff motivation and reduce conflicts. It may also be difficult to create a diverse cultural environment because of staff coming from culturally diverse backgrounds. Finally, change management is one of the top agendas of OJK which de-motivates the staff at workplaces and may because of high staff turnover and increased cost in its HRM management.
1.3 Research questions
Financial problems
- a) What are the challenges faced by the Indonesian banking sector to preserve financial stability?
- b) How can Indonesia develop its financial system to meet the challenge faced?
Strategic management
- a) What are the weaknesses of existing strategies and processes of OJK?
- b) How can OJK further strengthen its process and banking supervisor and monitoring?
Organizational behavior
- a) What are the weaknesses of OJK in legal protection, regulation process, and supervisors?
- b) What initiatives can OJK undertake overhauling the regulatory architecture?
Human Resource Management
- a) What are the lack of staff commitment in the OJK?
- b) How can OJK improve staff motivation and reduce conflicts?
1.4 Research aims and objectives
1.4.1 Aims of this study
The main aim of this study is to analyze and evaluate the process and activities of OJK identifying the challenges and difficulties faced in its current operations. Then, the study will suggest the OJK how it can overcome the challenges and difficulties faced……………..
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