We analyses some issues in the functioning and performance of microcredit under the Kudumbashree programme in Kalikavu Panchayat, Kerala. These issues are related to the low scale of financing in the absence of formal financial supports through NABARD's bank linkage and low level of income generation activities. The NABARD's bank linkage helps in financing of microenterprises. However, most microenterprises are not economically viable to undertake operation profitably. This work throws light on some of the issues raised regarding the microcredit as an alternative. This analysis gives insight into the features of the microcredit programme and helps to understand the shortcomings faced in the programme. As the findings shows, though the microcredit mechanism functions through 'informal networks','neighbourly' relations of borrowers, and group lending mechanism, as well as formal, structured institutions and organizations, but leaving the income generation to the market mechanism makes it non-viable alternative. This demands a comprehensive planning, supervision and support of state in the identification and implementation of income generation of various projects of borrowers