Microfinance, a modern concept was formally coined by Professor Mohammad Yunus with establishment of Grameen Bank in 1970’s. It is considered as an important financial sector development that has some impact on financial institutions. The role of microfinance institutions is to relax financial constraints for poor making them self-sufficient by generating income and wealth. This approach is considered effective to help poor get out of vicious circle of poverty. Pakistan Microfinance Network (PMN) was established in 1998 to represent emerging Micro Finance Institutions. In 2000 Poverty Alleviation Fund was established in collaboration with World Bank to fulfill the financing needs of Micro finance Institutions. This sector has almost 2.8 million active borrowers. Three different micro financing models are prevailing in Pakistan at this time; interest-based microfinancing (via banks), interest free micro-financing (via NGOs) and interest free skilled based microfinancing (via training centers).