Previous studies on microfinance focused on Credit constraints (Aliou et al, 2001; Liu and Cheng, 2009), and microfinance as a strategy for poverty reduction (Akanji, 2006; Cecilia et al, 2012). Using a large household survey data set, this study examines the demand for credits, determinants of credit rationing and the behavior of formal and informal lenders in six of the eighteen Local Government Areas in Cross River State, Nigeria; Ikom, Bekwarra, Boki, Etung, Ogoja and Yala Local Government Areas. We found that microfinance is an effective strategy for poverty reduction in the state, but it has not achieved optimum results. Well-performed microfinance institutions have contributed to poverty reduction in other places by expanding micro-loan services to the low income rural households with frequent incomes and to the female-headed households. The microfinance institutions have the capacity of reaching out to wider and poorer households if they (develop) innovate the loan products based on the income and expenditure flows of these households. We recommend sustainable and costeffective socio-economic development of the poor in Nigeria through micro financing. Microfinance institutions in the rural areas of Cross River State should improve their operational efficiency. They are required to significantly expand their rural market penetration. The village-level network is essential.

Keyword:Loan Products, Microfinance Model, Savings, Absolute Poverty, Rural Development

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