This study sought to determine auditing challenges facing microfinance institutions in advancing micro-credit. The study used descriptive survey research design. The population of the study consisted of microfinance institutions in Kenya. Regression analysis was used to analyze the data. The study concluded that financial limitation and creditworthiness had a positive effect on lending microcredit and therefore an increase in it will increase the lending microcredit to low income clients in Kenya. Growth limitation, System mismanagement and methodological failure had a negative effect on lending microcredit to low income customers’ in Kenya, and thus an increase in it will lead to a decrease in lending microcredit. The study recommended that the management of the microfinance institutions should focus more on auditing challenges and control and measures taken since they have a positive and negative effect on lending microcredit to low income clients in Kenya. The study further recommended that microfinance institutions need to explore ways of increasing member savings either by churning out products that entice the members to save more or by bringing on to board more clients for the savings to rise.
Key words: Auditing challenges, Microfinance institutions, Micro-credit.