The study examined the effect of Microfinance Institutions (MFIs) on the informal sector. Using descriptive method, the study targeted 217 traders that operate different businesses within the Kantamanto market area, which has about 6000 businessmen and women. Though this proposition has a well established theoretical base and is further supported by a number of empirical evidences, its findings are likely not applicable to all markets and countries. This work thus attempted to examine the effect of microfinancing on the people doing business under the informal sector, particularly the effects on the individuals and on the general market using a descriptive method. To accomplish this, the study used questionnaires and interview guide as primary data collection instruments and had 217 respondents operating different businesses within the Kantamanto market area. The study used the Statistical Package for Social Sciences (SPSS version 16) for the data analysis.