Assessing Financial and Social Sustainability: A Comparative Study of Islamic and Conventional Microfinance Institutions Across OIC Regions

Abstract

Microfinance institutions (MFIs) play a crucial role in supporting micro-enterprises and fostering economic growth by providing essential funding to small businesses. The stability and sustainability of these institutions determine their long-term effectiveness in promoting financial inclusion and poverty alleviation. In OIC countries, both Islamic and conventional MFIs are key financial players, yet comprehensive comparative analysis of their financial performance and social outreach particularly in relation to differences in their sources of funds and country specific contexts remains limited. This study evaluates the financial performance and outreach of MFIs across OIC regions, including a country-level analysis to account for contextual variations. Utilizing quantitative analysis from the MIX Market data, the study employs descriptive financial ratios and t-test analysis on financial and social indicators to assess stability and sustainability. The findings highlight key differences in financial performance across regions and MFI types, revealing that conventional MFIs exhibit higher profitability, while Islamic MFIs demonstrate greater operational efficiency. Additionally, outreach and risk indicators show no significant difference between the two models, suggesting that religious practices do not influence these aspects These performance variations are strongly influenced by country-specific factors such as regulatory environments, funding structures, and institutional support. This comparative analysis provides insights into regional trends, financial sustainability, and institutional effectiveness, assisting policymakers and practitioners in enhancing microfinance operations. By evaluating funding structures and performance metrics, the study contributes to a broader understanding of Islamic microfinance, its comparison with conventional counterparts, and its role in economic growth, positioning it as a viable alternative for financial inclusion in Muslim communities.

Date of Award	2025
Original language	American English
Awarding Institution	HBKU College of Islamic Studies