New Delhi, April 22 -- India's newly unveiled CGSMFI 2.0, a Rs.20,000 crore credit guarantee scheme for microfinance, aims to revive credit flows to the stressed sector. Yet, in its current form, it only partially addresses the symptoms and largely ignores the causes.

India's microfinance sector is in downturn. Its total loan book shrank from Rs.4.4 trillion to Rs.3.2 trillion between March 2024 and December 2025, with nearly 13 million borrowers exiting the system in just a year.

Four consecutive quarters of negative growth underline the depth of this slowdown. Unfortunately, this is not unprecedented. Roughly every five years, the sector enters a phase of stress, as seen in Andhra Pradesh in 2010, nationwide in 2016, eastern India in ...