This study examines the impact of microfinance services on the socio-economic welfare of urban households in Sabah, which is considered as the poorest state in Malaysia. The data were collected from recipients of microfinance services through self-administered questionnaire and were analyzed using Smart Partial Least Squares (PLS). The results of this study show that microcredit, microinsurance, savings, training, and social intermediation service have significant effects on socio-economic welfare of urban households in Sabah. The empirical findings can be used as a guideline for microfinance institutions to provide the best services that will reduce vulnerability of the households in Sabah. It can also assist the government to provide the best microfinance blueprints in the region.