This study examines the relationship of capital structure and financial sustainability of Microfinance Banks of Pakistan by using the panel data of 9 years from 2009 to 2014. The long-term stability and survival of an institution with its own financial resources, without donations and grants, depends on several factors. The capital structure is an important determinant of the financial sustainability of institutions. Moreover, microfinance characteristics such as management inefficiency, loan intensity, portfolio at risk, size of company, breadth of outreach and deposit mobilization also have a vital effect on financial sustainability. This study also focuses on these important characteristics of MFBs as a determinant of financial sustainability. Due to the availability of limited literature of financial sustainability and capital structure of microfinance institutions particularly as in case of Pakistan, this study has been conducted as an effort to find an empirical investigation about this relationship. Pooled Ordinary least squares (OLX) method for regression is applied after using the Hausman test and Breusch and Pagan Lagrangian test. Auto correlation, Multi co-linearity and Heteroscedasticity of panel data have been also checked. The study found a significant negative relation between borrowing of assets and financial sustainability. However, deposits which are used as a short term debt in the capital structure of MFBs and leverage have no significant effect on financial sustainability. Moreover, size of company, loan intensity and breadth of outreach has a positive significant effect on financial sustainability. However, management inefficiency has negatively affected financial sustainability. Moreover, deposit mobilization and Portfolio at risk have not found any significant effect on financial sustainability.