This paper set to provide an overview of microfinance in Nigeria and examine its problems and prospects. The data collected form secondary sources, were analysed descriptively. The microfinance scheme holds a lot of prospects for the Nigerian economy as it is expected to empower of Low- Income Earners, reduce poverty, generate employment, among others. However, the paper observed that among the problems faced in the micro finance industry are inadequate finance, high risk, heavy transaction cost, mounting loan losses, low capacity and low technical skills on micro financing. As a result of some of these problems, some micro finance institutions in Nigeria have collapsed. Consequent upon the problems noted, the following recommendations given, among others, are: the supervisory authorities should enforce standards so as to address the issue of poor management of funds meant for credit disbursement, the capital base of micro finance institutions should be strengthened in order to mobilize domestic savings and promote banking culture among low-income groups and the issue of private participation should seriously be encouraged.