Microfinance institutions (MFIs) have been recognized to eradicate poverty through the provision of financial services to the poor in war-torn Palestine and Jordan. To continuously provide banking and financial support to the poor, MFIs need to achieve sustainability by attaining sufficient productivity for long-term economic viability. Hence, this study evaluates the productivity of 13 MFIs in Palestine and Jordan by employing the Malmquist Productivity Index with five years data from 2007 to 2011. The microfinance industry observed overall 2.6% Total Factor Productivity (TFP) progress per annum and the decomposition of TFP revealed that the productivity progress was mainly due to progress in technological change. The result also showed a slight decline in the scale efficiency of MFIs. Overall, Palestinian MFIs seem to perform better than Jordanian MFIs.