Unequal reactive power sharing amongst distributed generators (DG) is a significant concern while operating a droop based microgrid. The reasons for this unequal reactive power sharing include the difference in feeder impedances, uneven distribution of loads and DGs in terms of size and locations. In this paper, a mixed-integer linear programming (MILP) problem applicable for a droop based microgrid has been proposed to achieve proportional reactive power sharing amongst DGs while maintaining very low line losses. Firstly, the optimal sizing and placement of DGs are investigated. This includes a detailed discussion on the linearisation of various nonlinear terms involved in the formulation. Subsequently, a day–ahead dispatch is generated for these DGs for a given load profile. Additionally, network reconfiguration has been incorporated for further improvement in performance. The effect of considering a practical constant impedance-current-power (ZIP) load model, instead of simply considering constant impedance loads, has also been assessed. The proposed formulation has been tested on a 33 bus network which has been modified to represent an islanded microgrid. The results obtained validate the accuracy of the proposed planning and dispatch method and demonstrate its utility in achieving proportional reactive power sharing amongst the DGs while incurring very low line losses.