Microfinance Institutions (MFIs) have emerged as a significant tool for empowering women entrepreneurs in developing countries, including Ethiopia. A critical narrative review was conducted, synthesizing existing research studies from peer-reviewed journals and books published within the last decade. The analysis revealed that while MFIs have contributed to financial inclusion, they often face issues such as high interest rates and limited access to formal credit and markets. Despite these challenges, MFIs play a crucial role in facilitating women’s economic participation by providing microfinance services tailored to their needs. Future research should explore innovative strategies to mitigate financial exploitation and improve service delivery models for greater impact.