The integration of distributed generation (DG) into a power distribution network allows the establishment of a microgrid (MG) system when the main grid experiences a malfunction or is undergoing maintenance. In this case, the power-generating capacity of distributed generators may be less than the load demand. This study presents a strategy for the effective utilization of deployed active and reactive power sources under power mismatch conditions in the islanded distribution networks. Initially, the DGs’ and capacitors’ optimal placement and capacity were identified using the Jaya algorithm (JA) with the aim to reduce power losses in the grid-connected mode. Later, the DG and capacitor combination’s optimal power factor was determined to withstand the islanded distribution network’s highest possible power demand in the event of a power mismatch. To assess the optimal value of the DG–capacitor pair’s operating power factor (pfsource) for the islanded operation, an analytical approach has been proposed that determines the best trade-off between power losses and the under-utilization of accessible generation. The test results on 33-bus and 69-bus IEEE distribution networks demonstrate that holding the islanded network’s load power factor (pfload) equal to pfsource during the power imbalance conditions allows the installed distributed sources to effectively operate at full capacity. As expected, the proposed strategy will assist the utility companies in designing efficient energy management or load shedding schemes to effectively cope with the power mismatch conditions.