Islamic microfinance is a finance system that follows the teachings of Shariah laws; this is a financial system that does not attract interest and promotes the welfare of its members while following the ethical business practices. This is a concept that is fast gaining prominence as a means of alleviating poverty especially in developing countries. In this paper, it has been found out that Islamic finance plays an important role in social economic development of its members without charging interest on the members. Furthermore, Islamic finance offers different ethical instruments and schemes that can be used for the purposes of microfinance. In Islamic finance, investors are allowed to determine the nature of investments that are done using their money. This paper is therefore important in understanding the concept of Islamic finance in alleviating poverty. It can be very useful for banks and financial institutions who have Muslims as part of their client base.