Business Performance and Heterogeneity among Islamic Microfinance Clients: Evidence from Pakistan

This paper explores the features and consequences of heterogeneity among clients of the largest Islamic microfinance institution in Pakistan, identifying differences in business and household outcomes between sub-groups of borrowers. The research is based on a longitudinal survey conducted between 2015 and 2017 of 500 new clients of the institution, providing a unique dataset of low-income entrepreneurs applying for interest-free microcredit loans. The data was analysed using t-tests to establish baseline differences between borrowers, and regression analysis to explore variations in business and household outcomes over the period. Evidence of significant heterogeneity was found among entrepreneurs at the time of the baseline survey. The longitudinal analysis shows that management experience was positively associated with business growth, but no significant association was found for gender, poverty level and credit experience and these variables were not found to associate with significant variation in employment creation. Nevertheless, the analysis does demonstrate a greater reduction in household poverty levels among those entrepreneurs that were poorer at the time of the baseline survey. Additionally, there was a general decrease of savings frequency over the sample period, particularly among female entrepreneurs.