Empowering MSMEs Through Financial Literacy and Business Planning in Semarang City 50 28

Abstract

Micro, Small, and Medium Enterprises (MSMEs) play a strategic role in national economic development. However, the growth of MSMEs is severely constrained by numerous internal and external factors. The downturn of MSMEs continues to impact the overall national economy. According to the Department of Cooperatives and MSMEs, 86.2 percent of micro and small enterprises in Central Java experienced a decline in revenue, facing challenges such as decreasing demand as well as operational and labor-related financial difficulties. Financial bottlenecks are common among MSMEs due to limited access to external capital. The root causes of this limited access stem from several issues, including institutional legalities, an inability to draft credit proposals (business feasibility studies), and low financial literacy—which results in limited or even non-existent financial administration. MSMEs often face obstacles in financial management and business development because these skills are perceived as less critical. Instead, management focuses primarily on producing quality goods and marketing them through familiar methods. This condition exacerbates the vulnerability of MSMEs, leaving them unable to anticipate external changes that impact their finances. Financial statements are vital for business management, as the financial information contained within serves as a portrait of performance and acts as an early warning system for the company's future financial health. This phenomenon indicates that MSME managers still have a low level of understanding regarding financial management and financial services/products. The financial literacy rate among MSME managers stands at only 40%, whereas the national financial literacy target for 2024 was set at 90%. Given these conditions, enhancing financial literacy among MSME managers through training in financial literacy and credit proposal preparation is crucial. Improving financial literacy alongside the ability to develop business plans and feasibility studies is expected to foster sound financial administration and empower MSMEs to access external funding.