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This paper examines how higher interest rates in public micro-finance in Tanzania are affecting the growth of SMEs. We argue that these financial institutions can help in giving credit and loans to the SMEs and entrepreneurs for different project implementation and growth but yet the fact may arise out that many SMEs are unable to meet the tough Banks requirements and interest rates currently in place. We realized that even though the project might be, neither too productive, nor too unproductive, reducing such interest rate is inevitable, with the SMEs being involved in borrower selection only. We further, identified statistically the present credit delivery and status of access to these institutions, understanding of interest in loans and SMEs distribution in the country.