There has been a strongly growing interest in considering micro financing as a viablernstrategy for the poor. Similarly speaking, Microfinance can be a critical element of anrneffective poverty reduction strategy especially for developing countries. More than everrnafter the success of the different MFIs, the system has been duplicated in the differentrnparts of developing world. Ethiopia is also one of the countries where microfinance hasrnbeen given due consideration as a safety net for the poor to help them overcome thernadversities of poverty. The services provided by microfinance institutions is desired tornenable the poor to smoothen their consumption, manage their risks better, build theirrnassets gradually, develop their micro enterprises, enhance their income earning capacity,rnand enjoy an improved quality of life. Microfinance institutions, as mentioned above, arernbasically set up with the goal of poverty reduction. Subsequently, in order to investigaternthe above premises, this study has undertaken empirical evidence in Omo MicrofinancernInstitution taking a sample of 120 clients from Qebena woreda , Gurage Zone , SouthrnRegion nation and nationalities to discern its contribution towards poverty reduction.rnConsequently the objective of this study is to find out the impact of microfinance towardsrnpoverty with a particular reference to Omo Microfinance Institution. The research workrnemployed both quantitative and qualitative methods such as questionnaires, keyrninformants; focus group discussions, and observations to obtain primary data. In addition,rnsecondary sources of data have also been collected from different literature and OMFIrnannual progress report. The contribution of Microfinance is analyzed based on income,rnliving condition, asset accumulation, saving, decision making power, self-confidence,rnbusiness management skills along with the strength and weakness of the institutionrnamong others. Though studies found positive impact of credit and unambiguous selectionrncriteria, but ignored examining the suitability of the methodology focusing onrnperformance analysis in terms of financial and operational sustainability and outreach,rnservice delivery issues of microfinance in Ethiopia. Much of their focuses have been onrnthe microfinance institutions rather than the program targets. Even if the studies were tornfocus on the beneficiaries of the program they were not far from investigating whetherrnpoor people are being reached or not. The finding indicates that OMFI scheme has madernpositive contribution to the clients in relation to observed variables. Neverthelessrnsignificantly higher number of the clients complained about the institutions high interestrnrate, too small loan size, repayment policy, problematic group dynamics. Therefore, as arnpointer to future endeavors, the current services of OMFI need to amend the loan size andrnreduce the interest rate in order to resolve the issues at hand and to fit the financialrnproblem of the poor in the sectorrnKey Words: Microfinance Institutions, Microfinance, Microcredit, Poverty, PovertyrnReduction