The main characteristic of rural households is that it is not fully subject to the modern economic laws, being rather governed by a series of less quantifiable principles (traditions, customs, traditional cultural patterns, etc.), which protected it in times of crisis, of transition, yet hindered it from technological, informational, economic and social progress. Micro Finance Institutions (MFIs) provide financial and non-financial services to the poor people in developing countries for their income generating activities as well as in Sri Lanka. An MFI could be a Non-Government Organization (NGO), a credit cooperative or a non-bank financial institution and Community Based Organizations (CBOs).Socio- economic impact expected from the provision of MFLs was as follows; availability of credit for food, cloths, medicine, spending social ceramonies, engadging in efforts for earning extra-income, investment in productive assests & micro entreprenuership or micro-bussiness however as per the findings of this study following advers socio-economic impacts were noted; impact of MFLs on family ties (Children and parents, with spouses), MFLs caused problems in marriages, caused to entangle in a chain of loans, consumes whole or most of the income of the household, caused the auction /pawning of valuable belongings etc. Sample of this study is composed of 130 households that have obtained micro-finance loans. Sample selection method was snowball sampling method. Field of study- Segala G.N. division of Elahera D.S division, Polonnaruwa district, Sri Lanka. Data was collected through both primary sources like interviews, questionnaires and secondary sources such as journals and newspapers etc. Data analysis tool was SPSS both qualitative and quantitative analyses were done to obtain optimum research findings.