The Social and Financial Performance of Conventional and Islamic Microfinance Institutions in Pakistan

The financing operations of conventional microfinance institutions are usually based on interest (Usury/Riba) which is strictly prohibited by the Shariah of Islam, therefore, some Islamic microfinance institutions were set up in Pakistan to provide micro credit and other financial help to the deserving people based on Shariah compliant mechanism. The aim of this paper is to evaluate and compare the social and financial performance of these microfinance institutions in Pakistan. Two separate samples containing two microfinance institutions each, representing conventional and Islamic microfinance institutions has been selected for this study. Four stars, Wasil Foundation and Akhuwat from Islamic microfinance institutions while Asasah and Community Support Concern (CSC) from conventional microfinance institutions, rated by Mix market have been selected for this research paper. The social and financial performance based on outreach, profitability, efficiency/productivity, and portfolio quality of both these microfinance institutions were studied and compared. The study revealed that Islamic MFIs were more cost effective compared to conventional MFIs based on cost per borrower (CPB) and operating expenses to assets (OEA), while on the basis of financial efficiency conventional MFIs performed well. Though the financial and social performance of both Islamic and conventional MFIs have improved over the passage of time, still they have to struggle hard on various fronts especially to improve their profitability based on ROA and ROE measures to make the institutions profitable and sustainable. This study reveals that the successful operation of Akhuwat and Wasil Foundation for the last more than a decade latterly proves that Islamic MFIs are viable and sustainable even in the absence of charging interest from their clients. So, the society and the government should encourage and promote these Shariah compliant organizations in order to help the extremely marginalized people of the society.

Does the Pakistan's economy support Wagner's law?

The subject study endeavours to observe the Law of Wagner with all six versions in Pakistan covering the period from 1981 till 2016. Law of Wagner describes the connection between economic-growth and expenditure of government i.e.the rise in general public expenses is a natural upshot for the increase in economic growth respectively. For this purpose, ADF test and co-integration technique has been applied to checkout the long run connection among the variables. In addition, ECM is also applied to find any short run relationship and to see whether the variables converges towards the equilibrium or diverges. Other than the possible reasons for the increase in government expenditure and Law of Wagner validity particularly in the perspective of developing countries. Conclusion emerges from the empirical results also supports the validity of Law of Wagner in case of Pakistan and found a long term connection between the variables of economic-growth and the public expenditure growth