Risk is the fundamental element that drives financial behavior of micro finance institutions. Financial Institutions, therefore, should manage the risk efficiently to survive in this highly uncertain world. The future of micro finance institutions will undoubtedly rest on risk management dynamics. Only those micro finance institutions that have efficient risk management system will survive in the market in the long run. The effective management of credit risk is a critical component of comprehensive risk management essential for long-term success of a micro finance institution that is why a micro finance's success lies in its ability to manage a risk.