Microfinance is the provision of financial services to people belonging to low income or solidarity income groups. Microfinance means small savings, credit and insurance services extended to socially and economically weaker sections of the society. It becomes as a powerful tool for poverty eradication in India. This research paper outlined the current condition of the Microfinance in India since its emergence. This concept of Micro-Finance is basically followed by Self Help Groups - Banks linkage Program. Its focus is to provide a cost effective financial services to the people below the poverty line. This paper comes into light the prevailing gap in functioning of microfinance institutions such as practices in credit creation, lack of product diversification, customer overlapping and duplications, consumption and individual loan demand with lack of mitigation measures, less thrust on enterprise loans, collection of savings/loans and highest interest rate existing in micro finance sector. All these are clear syndromes, which tell us that the situation is moving without any direction. Finally paper concludes with practicable suggestions to overcome the issues and challenges associated with microfinance in India. This paper provides a brief overview of some of the important issues and challenges currently facing the microfinance institutions (MFIs) in India and finally concludes with practicable suggestions to overcome the issues and challenges associated with microfinance in India.