Performance of Islamic Microfinance Institutions: Accounting for Well-Being

Abstract

Islamic micro-finance, despite being a small part of the Islamic finance industry, plays a significant role in poverty alleviation and financial inclusion activities. One of the key challenges facing Islamic micro-finance institutions (IMFIS) is the lack of measures of performance, which hinders the process of evaluating IMFIs' performance and the dynamic growth of the micro-financing sector. Unlike the conventional financial sector, there have been few attempts to measure the performance of IMFIS. The knowledge of measures and determinants of success factors for IMFIs is limited and compounded by a lack of theoretical basis underpinning research in this area. This paper focuses on examining the performance measures of micro-financing institutions in Islamic micro-financing. The determination of IMFI success factors would assist in the external evaluation and internal improvements of IMFIS, which would contribute to a more dynamic micro-finance industry. Therefore, IMFIs should be evaluated not only on output and the outcome measures of both social and financial performance, but also the process and with a view of the entire value chain of financing, along with the internal process of fostering borrower cooperation to enable the achievement of well-being.