There are two main motivations for undertaking this thesis on Sen’s capability approach and microfinance. One is to evaluate Sen’s capability approach by considering moral philosophy and developmental ethics contexts. The other is to analyse the impact of microfinance on poverty reduction in accordance with Sen’s approach. This thesis argues that Although Sen’s capability approach has drawbacks, both as a general moral theory and as a theory of justice, it does bring up important aspects of development and poverty reduction. When the empirical evidence is combined with criteria from the capability approach, microfinance is a relative failure as a poverty-reducing approach. The evidence that micro-loans reduce poverty is weak, and there are moral arguments against the group lending approach that is used to assure repayments. Other services sometimes associated with microfinance – savings and insurance — do help the poor, however. However, we should notice that the conclusion I propose here does not exclude the possibility that perhaps microfinance does help promote some other freedoms that are of significance locally.