A dissertation Submitted in Partial Fulfillment of the requirements for the award of the degree of Masters of Business Administration (Corporate Management) of Mzumbe UniversityThis study aimed to examine the capacity of microfinance institutions towards improving the performance of Small and Medium Enterprises in Dar es Salaam City. In particular it intended to determine the extent to which MSEs have been benefiting from the MFIs services, identify the types of services that MSEs have been receiving from MFIs, examine the pre-requisites to be met by the MSEs in order to get services from the MFIs and lastly it was aimed to examine the MFIs needs towards enhancement of MSEs performance. The study adopted a mixed method approach in carrying out the study. Data were collected from a range of sources by using different data collection techniques. Primary data were collected through the use of questionnaires whereby the secondary data were collected through documentation review. The data collected from the respondents are presented in chapter four.The results show that there is huge potential demand for support services which is not adequately met by the existing Micro finance institutions framework. The institutional framework for supporting SMEs was found to be constrained by inadequate financial and human resource capacity as reflected in the stringent conditions imposed on SMEs and strategies adopted to promote service delivery. The study concludes that microfinance institutions in Dar es Salaam have inadequate capacity that can help to improve the performance of SMEs. Therefore there is a need to strengthen level of awareness about what services are provided by MFIs for better development of Small and Medium Enterprises in Dar es Salaam city.