Microfinance institutions (MFIs) today are the largest financial institutions around thernworld. However, they are facing risks when they are operating. Credit risk is one of thernmost significant risks that microfinance institutions face, considering that granting creditrnis one of the main sources of income in microfinance institutions. Therefore, thernmanagement of the risk related to credit affects the profitability of MFIs. The aim of thernresearch is to provide stakeholders with accurate information regarding the credit riskrnmanagement of microfinance institutions with its impact on profitability. The mainrnpurpose of the research is to investigate if there is a relationship between credit riskrnmanagement and profitability of microfinance institutions in Ethiopia.rnIn the researchrnmodel, ROE and ROA are defined as proxies of profitability while PAR>30 days, LLPR,rnWOR & RC are defined as proxies of credit risk management. The research collectsrndata from 12 microfinance institutions in Ethiopia from 2003 to 2012 and formulates twornhypotheses which are related to the research question. A series of statistical tests arernperformed in order to test if the relationship exists. The findings reveal that credit riskrnmanagement does have statistically significant effects on profitability of commercialrnbanks. Between the four proxies of credit risk management, LLPR & WOR have arnsignificant effect on the both ROE and ROA while PAR>30 days & RC have anrninsignificant effect on both ROE and ROA.rnKey words: Credit risk management, Profitability, microfinance institutions, PAR>30rndays, LLPR, WOR, RC, ROA, ROE.