Living Standards of developing countries have always been a grave concern in economic literature. In various economies, such as Bangladesh, micro-finance plays an important role in raising the living standards of the deprived people, and hence it has proven to be a very effective mechanism to reduce poverty. The major economic concern of Pakistan is poverty, which, at present, is at a level of approximately 33 percent. The majority of the population in Pakistan is living either below or very close to the poverty line–60.3% of the total population earn less than $2 a day while some 22.6% of the population live under $1 a day. In the present era, poverty is considered as the breeding ground for conflicts among nations and terrorism. Poverty is widespread in developing countries like Sri Lanka, Bangladesh, Bhutan, India and Pakistan. For poverty reduction, different strategies, policies and programs have been formulated and adopted such as poverty alleviation programs and quick-fix measures to improve the earning capacity of the very poor thus providing them with a much needed social safety net.Government of Pakistan and many other organisations like Kashf Micro Finance Bank, Khushhali Bank, Tameer Micro Finance Bank, Rozgar Micro Finance Bank, Akhuwat, Asasah, Kashf Foundation, First Micro Finance Bank, and Community Support Concern are doing their share of work to increase their outreach. However, there exist large number of challenges in the way of micro-finance industry in Pakistan like political interference, high transaction costs, improper policies, and profitability.Micro-financing is very important for the poor segment of the country. However, the outreach of micro-finance is very limited in Pakistan. Micro-financing in Pakistan is at its premature stage. It is observed that people ostensibly take money from the microcredit banks for the purpose of business enlargement, but they misuse this money for the fulfilment of their individual needs like children’s educational fees or expenses, home necessities, home construction, medicines, children marriages etc.So the question arises whether micro-finance banks have helped in raising the income level of the poor people in Pakistan through micro loans and whether these loans have helped in alleviating poverty in Pakistan? To estimate the impact of micro loans on income and savings level of poor people of Pakistan, especially in Lahore district, research was conducted with the data of 200 clients of Kashf Foundation and First Micro Finance Bank, operating in Lahore district, which was collected through survey. The questionnaire collected information about family size, income, savings, age, education, size of loan and type of house. The study used Multivariate Analysis models.?The empirical results of this research suggest that micro-finance intervention are helpful in raising income level of the poor families. The results of the study show that income level of 61% of the respondents improved after getting micro-loans from Kashf foundation and FMFB. So the study concluded that Microfinance helps deprived people in improving their living standard. It can also help in provision of small and short term loans to mitigate the effects of poverty.The study findings stressed that there is a need for well-organised micro-finance policy for economic development of Pakistan and empowerment of poor households. Microfinance is a crucial strategy that leads to quick revival of economy, improvement in standard of living, empowerment of poor people and social mobility.In the light of the findings of this study, it has been revealed that there is a strong need for developing and promoting micro-finance culture and emphasising its role as a key element in the process of economic development and self-reliance. The State Bank of Pakistan has to assist and supervise micro-finance institutions for empowerment of low income household at the grass roots level and ensure that the deprived and needy people get micro-loans on terms and conditions that are reasonable. The study also recommended that the size of loan should be increased enough to meet the genuine requirements of borrowers. More opportunities should be given to poor people for the attainment of loans. MFIs should provide guidelines to their clients for the better use of credit. Timely disbursement of credit has to be ensured. The bank/foundation should revise repayment schedule if credit user suffers from problems in repayment of loan. Rate of interest should also be decreased.