The study is to investigate the situation of SMEs in terms of accessing financing through financial institutions. The poverty in Northern Nigeria became rampant, whereby financial institutions were not convinced to issue loans for SMEs due to the incapacitation of paying back the loans or the interest rate. The study used a Structural Equation Modeling based on Confirmatory Factor Analysis from the 310 data generated using SPSS and Sobel test. The predicted finding indicates that the development of SMEs with a significant number of business units and financing from Islamic financial institutions would enhance SMEs’ direction and development of Islamic finance and drastically address the Poverty in Northern Nigeria. The study will also predict a general overview of the positive mediation of Islamic financial institutions in addressing SMEs Financial Constraints and poverty reduction in Northern Nigeria.