Scrum Master Should have technical knowledge?

I have came across many organizations demanding Scrum Master to be technical, so just wanted to check why should a Scrum master be technical and what challenges he face if he is non technical?

My advice is to evaluate these "demands" critically, first of all. Does the organization really want a Scrum Master, or are they looking for someone in a technical leadership or management role, and which they would like to dress up in Scrum terminology?

Indeed what Ian says. And to add to that: I have seen this as a way if trying to cut costs; why hire a Dev ánd SM when you can have both in one. You can already why this wont work in real life, right?

Personally, I think a tech background can help (as it can be a pitfall as well) depending on the context, but coaching skills trump tech in any regard

Should the Scrum Master have a technical background?  Should a software developer have a quality assurance background?  Basically the same question and the answer is the same. There is not a good answer.  It could be beneficial but not that it is necessary. I know some great Scrum Masters who have helped their teams become highly productive and those people came from non-techinical backgrounds.  

As @Xander Ladage said, the ability to coach a team to be self-organizing, self-managing, self-aware is by far most important for a Scrum Master.

I second all the above responses. I would like to emphasise to refer the roots first statement from the Agile Manifesto that is more necessary than knowledge about the tools and process,

People and Interactions over Process and Tools