This research was conducted to examine the effectiveness of microfinance loan in household and community development in Mwanza. The research was done at Nyamagana District. The study focuses on identifying how microfinance loans are effective on household and community development and poverty reduction as the end result, the extent to which MFIs give poor people access to loans and enhance empowerment and self reliance. The collected data were analyzed qualitatively and quantitatively and the study findings revealed that, the effectiveness of microfinance loan has been significant. It was, however, noted that factors like, lack of collateral, high interest rates, lack of entrepreneurial education and lack of awareness on microfinance are setbacks. Despite of these, many people perceive microfinance loans positively with regard to its contributions in the community as far as development and poverty alleviation is concerned. The study also revealed that MFI have contributed to women’s empowerment, increased income, sustainability and self reliance. Moreover, the findings have revealed that loan repayments are only possible under very difficult financial circumstances. They experience little profit from the income generating activities as a result of high interest rates, short repayment periods and other set backs at the operational level. In addition the confiscation method applied defaulters, leaves people without any valuable assets. Finally the study concludes that, household benefits from microfinance in increased income levels, empowerment, sustainability and self reliance.