Juridical Review of Credit Collateral within Financial Engineering in Indonesia: An Introduction

Abstract

Lending is the main business activity in the banking business. However, it should be noted that in addition to promising benefits as the main source of bank income, lending also has a high risk side for banks, namely the risk of failure to return, resulting in losses for the lending bank. To reduce this risk, before extending credit, banks must make a careful assessment of the character, ability, collateral and business prospects of the debtor. Credit collateral has an important role in lending. Creditors collateral is an additional guarantee submitted by a Debtor Customer to a bank in the framework of providing credit or financing facilities based on Sharia Principles. This paper aims to provide an overview of the juridical overview of credit collateral in financial engineering in Indonesia. The research result shows that guarantee is not an absolute requirement. Therefore, it is possible for banks to provide unsecured credit. Guarantee is only one of the conditions that must be met by the customer in addition to other conditions. However, in operational practice, in lending, banks need to require collateral in the form of assets belonging to the debtor. This is based on the premise that lending is a risky banking activity, so in its implementation, banks must pay attention to sound credit principles. Keywords: credit collateral, financial engineering, Indonesian banking system DOI: 10.7176/JLPG/121-01 Publication date: June 30 th 2022