Despite controversies on the impact it has on poor households, MFIs are growing and operating in rnvarious regions of Ethiopia and in different socio-economic settings, by applying a similar approach. rnWhile the considerable number ofGurage enset culture smallholders are interacting with micro finance, rnempirical studies are lacking that reveals the overall situation of the interaction. rnWith the objective of examining the scenario of the interaction of smallholders with MFls particularly, rnOmo, in a setting characterized by traditional farming, small and fragmented land holding; rnagricultural production is dominated by perennial ensent crop for subsistence. For this purpose, Enata rnKebele in Cheha Woreda has been selected as a point of reference. By applying more of a qualitative rnapproach, data is collected by using tools like participant observations, in-depth interviews, case rnstudies, FGDs, key informant interviews and ethnographic conversation. rnThe study reveals that the actual factors that push smallholders to access credits from Omo deviate rnfrom the intended purposes of micro finance. Only a fow smallholders' actual factors fit with the rnintended purpose, while the majority accesses credit with the intention of using it to address other rnintended socio-economic issues. They don 't only use the credit off the target, the also misuse it, waste it rnfor unnecessary activities and fraction the credit into several parts rather than using it for one planned rneconomic activity. This study also displays, though credits should have to be given for those who can rnrepay it with incomes generated in a short period of time, due to the poor recruitment and evaluation, rnsmallholders ' credit request is rarely negatively responded by Omo micro finance. Even if the study rnarea has a good repayment rate, it is not an indicator of positive change; it rather is the result of asset rnreduction and indebtedness for repayment. rnThe impact assessment of this study shows fow success stories from those who attempted to use the rncredit for business activities. The negative side is manifested by reducing assets of smallholders, rncausing conflict among family members, forther indebtedness, psychological stress and enhances the rnexploitation of smallholders by local money lenders. The challenges that contribute for this are poor rnclient selection, absence of regulations, training and advice to smallholders, little promotion for saving, rninappropriate usage of credits, poor institution capacity and risks in the smallholders setting. Since the rnimprovement brought by Omo Microcredit is witnessed in only few household, the majority studied rnsmallholders have developed a negative attitude towards Omo Microfinance. This study finally rnconcludes, while the credit can be successfol for those households determined to engage in regular rntrade, the situation of the majority studied smallholders will be more disastrous if they do not managed rnto withdraw early from Omo at all costs.