DETERMINANTS OF FINANCIAL STABILITY IN MICROFINANCE BANKS: EVIDENCE FROM PAKISTAN

Abstract

Introduction:

Pakistan’s microfinance sector—comprising six banks, thirteen MFIs, and five rural support programs—serves over 12 million borrowers. As a key tool for poverty alleviation, microfinance supports low-income communities, especially in rural areas. This study explores factors influencing the financial sustainability of microfinance banks to guide policymakers in promoting sustainable and inclusive growth.

Objective:

To assess the relationship between institutional factors and the financial stability of microfinance banks in Pakistan, with implications for poverty reduction and economic development.

Methods:

A quantitative, cross-sectional analysis was conducted using secondary data (2018–2023) from financial statements of microfinance banks. Independent variables—size, age, efficiency, outreach, capital, leverage, and credit risk—were tested against financial sustainability.

Results:

Institutional age, efficiency, and leverage significantly enhance financial sustainability, while size, capital, and credit risk show limited impact.

Conclusion:

Institutional maturity, operational efficiency, and effective leverage are key to sustaining financial stability in Pakistan’s microfinance sector. Further research with larger datasets is recommended.