Credit risk is the financial risk arising from a microfinance institution's dependence on another party (counterparty) to perform an obligation as agreed. Credit risk management and control are so critical for microfinance firms to remain competitive and appealing. As a result, the primary goal of this study was to empirically investigate the determinants of credit risk in Ethiopian microfinance firms. A fixed effect regression model was used in the investigation. Thirteen microfinance institutions were taken as a sample. The researcher used a purposive sampling technique to select those Thirteen microfinance institutions. The data covered from the period 2012-2020 were used for analysis. The data was collected from national banks of Ethiopia, the association of Ethiopian microfinance institutions and world bank data. A Balanced longitudinal/panel secondary dataset were used in this study. Also, Explanatory research design, quantitative research approach and positivism paradigm were employed to examine the effect of explanatory variables (profitability, operating efficiency, leverage, loan growth, liquidity, capital adequacy, age, firms’ size, GDP growth rate, broad money supply (M2), lending rate, Inflation rate and Unemployment rate) on the dependent variable (credit risk). The major findings of the study revealed that Loan growth rate, Return on Asset and Liquidity had a negative and statistically significant effect on credit risk. Whereas, leverage and size had a positive and statistically significant effect on credit risk. All the rest of the explanatory variables, were statistically insignificant in explaining credit risk of Ethiopian microfinance institutions under the study period. Thus, Loan growth rate, Leverage, size, return on asset and Liquidity are the most powerful variables for variation in credit risk among microfinance institutions in Ethiopia.