The COVID-19 pandemic is dangerous to people’s lives and livelihoods, creating immediate obstacles for organizations that support impacted populations. This research concentrates on the consequences for local microfinance institutions in Pakistan, which is a well-developed sector that has pulled many households out of the poverty trap. Microfinance programs in Pakistan provide financial resources to vulnerable and deprived people to engage in income-generating practices on more favorable terms. As a result, this study addressed and assessed the financial dimensions of managing poverty reduction in rural Pakistan through the microfinance segment and its effectiveness on poverty-reduction programs in Pakistan during the COVID-19 pandemic. The primary data were collected through a questionnaire survey to determine the views of the households, beneficiaries, and non-beneficiaries on the outcome and efficacy of poverty-reduction programs during the pandemic to meet the study objectives. The Mann-Whitney U test of the non-parametric method and Cronbach’s alpha of the data reliability test have been applied for the empirical analysis. According to the non-parametric findings, programs, marital status, working women members, and resources such as land, livestock, business assets, shares, and loans have all been affected during the COVID-19 pandemic. Education, wages, gender, size, child dependency, and district variables are significant factors related to poverty, but they fell into second position during COVID-19. These findings suggests that the small loan system must be improved and made efficient during the pandemic. This could be a practical tool to maintain poor people’s current economic and poverty position. Copyright © 2022 Lu, Dai, Ali, Al-Faryan and Iqbal.