The debate about the important instruments in Islamic banking in Indonesia is still on going. Some researchers still find that murabahah (sales and purchase contracts) dominate Islamic banking transactions compared to profit-sharing contracts, namely mudharabah and musyarakah. Whereas murabahah is not a typical instrument of Islamic banking so that the application of Islamic banking instruments in Indonesia has not been in accordance with the idealized one. The crucial question of why murabahah has become the most widely used instrument is raised at this point. This dissertation will examine the function of murabahah in Islamic banking, particularly for micro-enterprises, based on these issues.This study aims to explore the role of Murabahah financing in improving the performance of micro-enterprises. This research was conducted in the area of ??Surakarta City, Kab. Sukoharjo, and Kab. Karanganyar by raising case studies of KSPPS or BMT Amanah Ummah, KSPPS BMT KCS Colomadu Sejahtera and KSPPS Melati Harapan. The data used are primary data obtained directly from the respondents. This study uses the Simultaneous 2-SLS model analysis method. The results of the study indicate that Murabahah has given an important role to micro-enterprises through the capital channel. The capital provided by Islamic microfinance institutions has a significant influence on the performance of micro-enterprises. In addition, this study also found that important factors that support the success of micro-enterprises are education, experience, and the number of workers.
