Microfinance Institutions (MFI) are expanding their reach in Ethiopia at an accelerating trend. The study has attempted to look at the initiation of sustainable Islamic MFI in Afar region. Concurrent triangulation strategy was adopted to address the research objectives. In order to get relevant data, descriptive research design and quota sampling methods were used. And survey have been taken through questionnaire from three Zones of Afar region namely Zone 1 (Awsi Resu Zone), Zone 2 (Kilbeti Resu Zone), and Zone 3 (Gebi Resu Zone), with a total sample size of 227 pastoralists, document review and face to face interviews conducted with the officials responsible for initiation of MFI in Afar region. The results showed that the nonexistence of statutory provisions regarding to the operations of Islamic microfinance institution resulted to delay its introduction in Afar region. In addition, the assumed high transaction costs that will be incurred in providing financial services to pastoralists pointed as challenging factors. To overcome these, laws and regulations should be designed to foster the establishment of Islamic MFI and also use Islamic microfinance models such as mudharaba, musharaka, murabahah, ijarah, qard al-hasan and others models that comply with Shariah principles.