Small and Medium Enterprises had a strategic role in economic growth. One of the mainproblems faced by SMEs in Indonesia was the limited financial capital and access tofinance. Islamic Rural Banks (BPRS) could play a significant role in providing financingfor the development of the real sector through SMEs. This study aimed to analyze theinfluence of internal and external factors of banking to the SMEs financing for BPRS inIndonesia 2011-2016 periods using the Vector Error Correction Model (VECM) method. Inthe long-term of VECM estimation result showed that third party funds, FDR, inflation,and IPI had a significant positive effect on SMEs financing, while BOPO, NPF, ERP, andBSBIS variables negatively affected SMEs financing. This study recommended the importanceof increasing the proportion of SMEs financing in line with the increase in thenumber of third party funds and putting more funds in the real sector than in the monetarysector.