The main purpose of this research was to determine and identify the challenges faced by micro finance institutions (MFIs) in credit management in Kisii. The study was guided by the following research questions: What are the exposing factors to credit risk among microfinance institutions? What is the relationship between credit management policy and customer retention? What are the guiding principles and practices that can be used to manage credit risk in microfinance institutions? In order to achieve the above, the study adopted a descriptive research design in order to obtain the data that is necessary, which in essence facilitated the collection of the private data as a way of getting into the research objectives. The population under study was 54 micro finance institutions. The collection of the private data was done using structured questionnaires that were pilot tested in order to ensure that there was reliability as well as validity. The coding of the data was done with the use of Microsoft Excel as when as Statistical Package for Social Sciences (SPSS) in order to generate the descriptive statistics for instance frequencies and percentages. The study findings reveled that there are various exposing factors to credit risk among microfinance institutions in Kenya. Specifically the majority of the respondents were of opinion that loans to individuals, highly contributed to credit risk, followed by involvement in foreign exchange trade, operational risk, prevailing inflation rates, prevailing interest rates group loans and finally, investment in bonds and equities. This implies that indeed issuance of loans to individuals is highly risk as compared to groups. It also implies that investment bonds and equities are less risky. The study concludes that that there is a positive relationship between credit management policy measures and customer retention. The study also concludes that the credit control policy implemented determines the risk exposure. Finally, the study concludes that controls, supervision and audit are adequate to mitigate credit risk.