India’s microfinance sector is cutting back on loans under ₹50,000 amid rising defaults, over-indebtedness. Market shrank 17% year-on-year to ₹3.59 lakh crore by June 2025, while NPAs surged to 16%. Lenders now prefer larger, safer loans, but this shift threatens financial inclusion, leaving rural families and small businesses struggling for affordable credit. Regulators face tough balancing act.