This study investigates the relationship between microfinance and poverty reduction in Bayelsa State of Nigeria. Relevant literatures were reviewed for the study. To guide the study, four hypotheses were developed. They were used to measure the main variables of the study. The target population for this study was all women involved in small scale business in Bayelsa State, Nigeria. A sample of 286 respondents was purposively selected for the study. The instrument for the study was a questionnaire titled microfinance and poverty reduction. To analyse the data generated, the Chi-sqaure, ANOVA and descriptive statistics were used. The analysis of the data revealed that there is a significant relationship between microfinance and poverty reduction in Bayelsa State, there is a significant difference between microfinance and traditional rotating system there is significant difference between loan repayment by the women and poverty reduction in Bayelsa State and significant difference between microfinance and the status of women in Bayelsa State, Nigeria. The conclusion drawn from this study, therefore, was that microfinance alone cannot reduce poverty in any society where basic infrastructures like good roads, steady power supply, good transportation system, etc., are nearly not available for the women to benefits from the introduction of microfinance in Nigeria. The study, therefore, recommends among others that the governments in developing economies like Nigeria should as a matter of national priority provide the basic infrastructural facilities to enable small business owners grow; the National Poverty Alleviation Programme (NAPEP) should be well strengthened to reduce the level of political manipulation by political leaders in the country and a reduction in the interest rate for microfinance institutions and other stringent issues about microfinance model of poverty reduction should be adequately and seriously applied to minimize the level of poverty in Nigeria.