Financial crisis could be transmitted across countries through the contraction of capital inflows to the financial sector. Since credit booms in emerging market economies might be due to large capital inflows, microfinance institutions (MFIs) with higher credit growth during the pre-global financial crisis might have faced a higher credit contraction during the crisis as significant decline in capital flows could be expected. Hence, the study examines the effect of credit expansion on financial stability in the context of MFIs and the moderating effect of legal status on MFI credit boom and bust cycle using panel dataset of 101/121 MFIs in Sub-Saharan Africa (SSA) covering 2004–2009. Using the Ordinary Least Square (OLS) regression, the study confirms that there is weak or no boom–bust pattern in MFI credit growth depending on their legal status. MFIs with rural bank and NGO legal status exhibited a boom–bust pattern in credit growth while the boom had little impact on the subsequent credit growth of NBFIs and micro-banks. Moreover, the rapid credit growth had no any negative effect on credit union/cooperative subsequent lending behavior suggesting that legal status has a moderating effect on credit boom–bust cycle. The study also uncovers that changes in non-deposit borrowings and MFI size have amplified/mitigated credit contractions during the crisis.