The Little Inca-finch is endemic to Peru and restricted to a small area of arid scrub in the lower Marañón valley at between 350 and 900 metres. See the distribution map at Birdlife International. It is classified as Near Threatened because of its small area of distribution and the threat to its habitat.

The specific name refers to Henry Watkins, an English collector who lived in Peru around 1910 to 1926.