Assessing the Non-Financial Sustainability of Islamic Microfinance Institutions in Pakistan and Their Contribution Towards Sustainable Development Goals

Abstract

Non-financial sustainability becomes a vital dimension in overall performance of microfinance Industry, especially in Islamic Microfinance Institutions (IMFIs). Social performance and its assessment are essential components as they are link to institutional goals with broader social outcomes such as poverty reduction, best utilization of resources, environmental effect of social finance and economic growth at micro level. Sustainability requires effective networking with government institutions, NGOs, and international donors to enhance resources and effective knowledge & practices. Main objective of microfinance is to alleviate poverty and maintain social equality without profit oriented approach, Therefore, IFMIs sustainability shall not delimited to financial but also associate with such variables that are essential for their core objectives. Essentials factors of non-financial sustainability include mission & vision sustainability, organizational development, Governance, program, impact assessment, Shari’ah compliance, human resources, environmental, effective market, policy & legal, and external factors sustainability. The purpose of the SDGs by UN is to create a global roadmap for making the world more prosperous, fair, and environmentally safe by 2030. The main objective of microfinance institutions is to alleviate poverty and cause of social inclusion which are the major parts of agenda 2030 of SGDs of UN. Thus, the main objective of this study is to assess the sustainability of IMFIs in term of non-financial factors. To achieve this objective, the self-administrative questionnaire was developed and responses were collected from top management of all IMFIs, all over Pakistan. Framing effect was observed in few responses. Descriptive statistics and frequency analysis are used to explain the results. Literature found on the sustainability however; it is limited to financial sustainability only. Nevertheless, other multiple factors that may affect directly or indirectly to sustainability with their well-defined indicators, found missing. The results depict that, IMFIs are sustainable in terms of mission & vision, Governance structure, human resources, environmental, external factors effecting sustainability and market. However, they are lacking in Impact assessment, Shari’ah compliance & audit, risk management and program sustainability. Some respondents have concerns regarding regulator and government support. This study will contribute in assisting practitioners by highlighting measures that effect sustainability, particularly emphasizing Shari’ah compliance in IMFIs.