The purpose of this study was to assess the challenges facing Microfinance Institutions in their operations. The specific objectives were to identify the services provided by Microfinance Institutions in their areas of operations and to examine the challenges they faced in providing financial services to their clients in rural areas. Data were collected using different techniques, questionnaires, interview and observation. The sample size involved 60 respondents. Data were analyzed and presented using descriptive statistics. The study findings showed that Lokingamma SACCOS offered services such as savings, small loans, deposit and training to its members and leaders. This study also identified a number of challenges Lokingamma SACCOS is facing in providing financial services including; poor repayment of loan, improper recording and bookkeeping, negative perception toward Co-operatives among SACCOS members, inadequate skills and knowledge of members, lack of capital to lend to members and career development to the staff. This study recommends that in order to deal with the mentioned challenges, penalty upon late repayment of loan should be introduced and emphasized; mobilization about the significance of SACCOS should be provided in the community to reduce negative perception toward co-operatives. Also, the government should support SACCOS through setting supportive legal frame work that improves all SACCO’s undertakings.
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