Islamic Microfinance Institutions and Their Financial Sustainability in Pakistan; An Empirical Approach

Pakistan with 98 % Muslim population, is considered to be the most suitable and dynamic market for Islamic microfinance. People are more interested in Shahria based financing but IMF still capture only 0.5 % of the market. Due to world trend towards Islamic banking, State Bank of Pakistan (SBP) not only interested in commercial Islamic banking but also in microfinance but still behind in it. NRSP Microfinance Bank ltd. is the first microfinance bank, have started Islamic financing in Pakistan and considered to be the first Islamic microfinance bank in Asia. Microfinance sector has high cost of financing and problem of sustainability always hurt to institutions. Islamic microfinance in Pakistan is facing a serious problem of sustainability because it has high cost than conventional. Therefore, Islamic microfinance banks can face a serious problem of sustainability. When the MFI is able to cover its current, growing and expansion cost then MFI is said to be financially sustainable. Financial sustainability is a tangible parameter and can be monitor and measure through a continually set of indicators (Susan Johnson, 2006). Financial sustainability can be classified into four stages, starting from the first stage when MFI’s totally dependent on grants for running its operations to the final stage when MFIs fully finance from its own resources mobilized from the clients and funds raised from the financial institutions at commercial rates. This paper will provide the basic guidelines and standards to sustainable Islamic microfinance institutions for further promotions and positioned in market, keeping in view the practice of microfinance banking industry by adopting empirical approach