Microfinance means providing financial assistance in the form of small savings, loans etc. to the socially and economically backward sections of the society. Under this, financial services are provided to the deprived people on affordable terms. The concept of microfinance works to fulfill the goal of empowering the people by removing the disparities in the society as a result of natural or man-made factors like caste, religion etc. The pioneer of this concept is Professor Mohd. Yusuf of Bangladesh, who experimented in the direction of micro finance in 1970’s and brought out its positive impact on rural development. Thus a model of microfinance emerged in the form of Grameen Bank. And now this concept is being adopted in almost all the developing countries of the world for financial inclusion, rural development and poverty alleviation. For the last several years, the concept of financial inclusion is being given importance as a tool to reduce poverty in developing countries. In India too, financial inclusion has been a priority in the context of poverty alleviation, rural development. It plays an important role in reducing financial inequality in the country. Microfinance creates livelihood opportunities and helps in income generation by providing financial services to disadvantaged sections of society who do not have access to formal banking. The aim of this paper is to study the role of microfinance in financial inclusion. It studies the various policies of microfinance institutions, related government institutions and various NGOs. This research paper discusses the types of micro finance institutions, their functioning, the current scenario of micro finance institutions is explained in it.For this, secondary data has been used, which has been taken from various research articles, research papers, reports and newspapers. The results of this study can be beneficial for policy makers and all concerned stakeholders.