Questions have been raised as to whether Microfinance Institutions (MFIs) provide social and economic security to AIDS affected households by improving their income. It is feared that MF leads to welfare loss. It has become a micro-debt trap that impoverishes rather than improves income level of the affected poor households. The main objective of this study was to establish the effect of microfinance on incomes of AIDS affected households in Kakamega County, Kenya. This study was guided by the Social Capital Theory. Descriptive and correlation research designs were adopted for the study. A sample of 416 survey household respondents was purposively and randomly selected and data analyzed using both descriptive and inferential statistics. The study found that MF products and services marginally increased income level of AIDS affected households. Pearson’s correlation coefficient (r = 0.249, p < 0.01) illustrated that the number of times a household went for loan was significant and marginally positively related to the current level of household income. Further, a pooled Mann Whitney U test indicated that there was highly significant difference between mean rank income levels of affected households with and without MF (U = 16321, p = 0.000). The study found that MF services can be a very important tool in AIDS impact mitigation. They improve income levels of AIDS affected households. However, access to MF services is limited due to high interest rates and limited competition among MFIs. The government should consider creating an enabling environment to allow more MF players to improve competition which would lead to low cost of borrowing money. Second, MFIs should reduce their current lending rate of between 16-22 percent through exploiting opportunities that can reduce the cost of loan processing like in mobile money transfer. this. The government should come up with a set of rules and regulations to guide the operations of MFIs in the country as this sub-sector remains unregulated. A longitudinal study should be carried out to find out how income has changed overtime in response to MF services.

microfinance, income levels, HIV and AIDS, affected households, quasi-experimental, survey