This paper investigates the role and effectiveness of microfinance in fostering economic development within developing economies. It synthesizes existing literature to explore various microfinance models, their socio-economic impacts, and operational challenges. Employing a qualitative research approach, the study examines case studies and empirical data to evaluate microfinance's contributions to poverty alleviation, women's empowerment, and local economic growth. Findings highlight significant positive outcomes in income generation, entrepreneurship, and social empowerment, albeit with sustainability concerns and varying impact across different contexts. The paper concludes with recommendations for policymakers to enhance microfinance sustainability, expand financial inclusion, and optimize developmental outcomes.