The objectives of this study are to analyze the impact of microfinance loans on paddy production among smallholder farmers and to identify the differences in paddy production who are the borrowers and non -borrowers of micro finance loans from micro finance institutions in Sri Lanka. For the above purposes, primary data were collected through a structured questionnaire considering six divisional secretariat divisions in Jaffna district, Sri Lanka for the period of 2014 -2015. A total of 93 respondents were selected randomly from loan beneficiaries and non -loan beneficiaries from the study area. The collected data were analyzed thorough various econometrics techniques such as, frequency analysis, independent sample t test, simple regression using dummy variable and log -log regression model. Results of independent sample t test proves that there are differences in average production of paddy among the borrowers and non -borrowers while log -log model reveals that usage of fertilizer has negatively affect on paddy production, but other four inputs namely, seed, cost of labour, machinery and size of cultivated land positively impact on production of paddy who are the farmers received loans from micro finance institutions in Sri Lanka. Overall results suggest that loan beneficiaries who were received loans relatively better in accessing markets for paddy cultivation, and usage of inputs and also adoption of improved farming technologies in Jaffna district, Sri Lanka.