Quest Journals Journal of Research in Business and Management Volume 8 ~ Issue 12 (2020) pp: 01-08 ISSN(Online):2347-3002 www.questjournals.org *Corresponding Author: Lilies Setiartiti 1 | Page Analysis of Islamic Financial Literation for MSMES in Yogyakarta Lilies Setiartiti *) *) Department of Economics, UniversitasMuhammadiyah Yogyakarta, Indonesia ABSTRACT The purpose of this research is to assess selected attributes of the SMEs and analyze the factors that determine the level of Islamic financial literacy for the MSMEs in Yogyakarta, and how MSMEs understand these factors supporting the development of their business. Data obtained using survey techniques and in-depth observation to provide answers of the problems faced to explain the phenomenon. The results indicated that most of MSMEs have never used financial statementsand accounting information in making decisions related to their business development and judge that accounting information is not important for their business.Overall, this research provides some important insights for Yogyakarta to highlight possible steps for the policy makers as a reference to formulate policies related to increasing financial literacy for MSMEs KEYWORDS: Financial literacy, MSMEs, microfinance, islamic finance Received 30 November, 2020; Accepted 15 December, 2020 © The author(s) 2020. Published with open access at www.questjournals.org I. INTRODUCTION Micro, Small and Medium Enterprises (MSMEs) in Indonesia have a significant role in the national economy, especially Gross Domestic Product (GDP), employment reaches the range of 51.7-97.2% and poverty alleviation.As the backbone of the economy, the number of SMEs in Indonesia reaches 99% of the total number of business operators. The number in these two years has also increased. In the 2016 period the number of MSMEs reached 57.9 million units, while in the period of 2017 it reached 59 million, an increase of 2% from the previous year. Of that number only 30% can access financing from banking financial institutions.The existence of SMEs also has a direct impact on people's lives in the lower sector, at least covering 3 things, including: the first MSMEs is a means of poverty alleviation because of its tendency to develop on the basis of cooperative advantage, so that it has the potential in labor absorption. Second, its important role in the economic equality of the community, the three MSMEs provide income for the state in the form of foreign exchange Based on 2016 census data, of the total number of businesses around 246,217 business units, the number of micro, small and medium enterprises (MSMEs) was 235,313 or 98.40% of the total businesses in Yogyakarta, and micro entrepreneurs are very dominant in the percentage of 55% (Disperindagkop,2015). Yogyakarta's economic growth in 2017 was 5.26% (yoy), an increase compared to 2016 which was recorded at 5.05%, where the share of MSMEs was quite significant, which was 95% (BI, 2016). This indicates that the prospects for SMEs in DIY are promising and their existence is able to survive when there are economic turmoil at national and international levels so that the opportunity to develop becomes greater. However, the big problems faced by the MSMEs in Yogyakarta are financial inclusion or access to Islamic finance are still low. Various studies show that access to most MSMEs towards capital is still limited. The low access to capital gains by MSME entrepreneurs is generally constrained by the weakness of the business financial administration system and lack of bankable guarantees, low business competitiveness, and weak integration of MSME development (Ma’ruf,2015). Beside the various performances and achievements of MSMEs in the formation of added value in Yogyakarta's economy, as well as the continued development of this sector when the national economy faded since 2014, MSMEs were also faced with various issues that require comprehensive handling. These various problems include weak business networks, lack of human resources capability, lack of capital access, low technology utilization, weak institutions, and unstable regulation and macroeconomic (Disperindagkop DIY,2015). As the backbone of the regional economy, MSMEs are the main stakeholders as users of funds from the financial sector. Therefore understanding of MSMEs towards inclusion and financial literacy becomes very