Micro and Small Enterprise Lending (MSEL) in the context of Indian microfinance is still at a nascent stage thereby providing scope for expansion. This note discusses some of the key challenges faced by MFIs implementing MSEL model. These challenges pertain to coping with cash-flow based lending servicing diverse businesses and problem in recognising assets as collateral due multiple ownerships in India. Operation and human resource issues also pose a significant amount of challenge while implementing MSEL model microfinance. Financial management in terms of integrating MSEL to existing group based models, demand substantial cash and many MFIs do not plan their liquidity to respond to this increased demand. The challenge of establishing effective MIS to cater to the varying requirements of clients is another aspect discussed in the note.