Dissertation (MA Business Administration)This study assessed the influence of market risk on the profitability of microfinance institutions (MFIs) in Tanzania. Market risk is divided into interest rate risk and foreign exchange rate risk whose indicators were net interest margin and foreign exchange gains or losses respectively while having GDP, inflation and money supply as control variables. Profitability of microfinance institutions was measured by ROAA. The study analyzed the long run relationship between interest rate, foreign exchange rate and profitability of MFIs as well as the effect of interest rate risk and foreign exchange exposure on profitability of MFIs. The theory applied in the study was Capital Asset Pricing Model. The study employed quantitative research approach and time series research design. Secondary data was used in the course of this study, which was generated from the quarterly audited financial statements of FINCA microfinance bank from 2010 to 2020. In analysis of data, the study employed descriptive statistics, pairwise correlation matrix, and unit root test based on Augmented Dickey Fuller (ADF) test and Phillips Perron (PP) test. The study also used Johansen test for co-integration to test for long run relationship. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were used to determine both the short run and long run effect of interest rate and foreign exchange rate on profitability respectively. A diagnostic check was also carried out through Breusch-Godfrey test also known as Lagrange Multiplier (LM) test to test for autocorrelation, Jarque Bera (JB) test to test for normality and Breusch Pagan test to test for homoscedasticity. The results of co-integration test indicated that there is no long run relationship between interest rate, foreign exchange rate and profitability. Also the findings on the influence of change of interest rate on the profitability of microfinance institutions indicated that there is a statistically significant positive short run effect between interest rate, lag of GDP and profitability. Lastly foreign exchange risk has a negative significant association with profitability in the long run while it has no statistically significant influence on profitability in the short run. Macroeconomic variables don’t have any significant influence on the profitability of microfinance institutions both in the short run and in the long run. It is recommended that the microfinance institutions in Tanzania especially the locally owned need to find ways to mitigate the effect caused by market risk factors on their profits including the use of financial derivatives and asset securitization.