This study examines how restricted access to microfinance by households affects children’s learning outcomes, utilizing a unique natural experiment that halted all microfinance operations in Andhra Pradesh (AP), India, in 2010. The analysis exploits quasi-random variation in district-level exposure to the shock in states other than AP, as the regulation affected lenders’ liquidity nationwide. Using difference in-differences and event study designs, we find a significant and persistent decline in children’s learning outcomes. The restoration of credit access does not fully reverse these effects, highlighting the long-term consequences of short-term financial disruptions. As plausible mechanisms, we find a shift in enrollment from private to government schools, lower household spending on education, reduced food expenditure impacting nutrition, and a decline in mothers’ employment potentially affecting intra-household resource allocation. Heterogeneity analysis reveals that the adverse effects are more prominent for girls and younger children. By focusing on the effects of regulatory restrictions rather than microfinance service provision, this study complements existing literature and provides a more comprehensive understanding of the socioeconomic impacts of microfinance.