UPSC Prelims Practice Questions — Govt. extends micro credit guarantee scheme for 5 years

Q1. With reference to a credit guarantee fund such as the Credit Guarantee Fund for Micro Units (CGFMU), consider the following statements: Which of the statements given above is/are correct?

  1. It enables lenders to extend loans without collateral by absorbing part of their loss if borrowers default.
  2. The cover is held by the borrowing micro units, who can invoke it if their business fails.
  3. Compared with lending the same amount directly from the budget, it widens credit to micro units at a much lower upfront fiscal cost.
  • A. 1, 2 and 3
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 3 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A ₹5,000 crore corpus approved for the Credit Guarantee Fund for Micro Units is expected to support about ₹12.6 lakh crore of loans under the Pradhan Mantri Mudra Yojana.
  2. A guarantee fund pays out only on the defaulted portion of the loans it covers, so its corpus needs to match expected claims rather than the full value of the guaranteed loans.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. With reference to the Pradhan Mantri Mudra Yojana (PMMY) after the 2024 revision of its loan ceiling, consider the following statements: Which of the statements given above is/are correct?

  1. Any micro enterprise needing credit between ₹10 lakh and ₹20 lakh can apply directly under the Tarun Plus category.
  2. Guarantee cover under the Credit Guarantee Fund for Micro Units extends to loans in the Tarun Plus category.
  3. Since Tarun Plus loans exceed ₹10 lakh, they fall outside the collateral-free design of PMMY and must be secured by collateral.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 only
  • D. 2 and 3 only

Q4. Consider the following facts about the Pradhan Mantri Mudra Yojana (PMMY): as of September 2026, more than 60.36 crore loans worth about ₹43.34 lakh crore had been sanctioned since its launch; PMMY loans are collateral-free; and the Tarun Plus category (₹10–20 lakh) is open only to borrowers who have repaid earlier Tarun loans. Which of the following inferences can be validly drawn from the above facts?

  1. The average loan sanctioned under PMMY since its launch has been below ₹1 lakh.
  2. In Tarun Plus, a borrower's repayment record serves as a screening signal in place of pledged assets.
  3. Most loans sanctioned under PMMY since its launch have been repaid without default.
  4. The total Mudra credit outstanding with lenders stood at about ₹43.34 lakh crore in September 2026.
  • A. 1, 3 and 4 only
  • B. 1 and 2 only
  • C. 1, 2 and 4 only
  • D. 2 and 3 only

Q5. With reference to credit guarantee arrangements for small borrowers in India, consider the following statements: Which of the statements given above is/are correct?

  1. Under the 2020 Emergency Credit Line Guarantee Scheme, the entire additional credit was guaranteed, unlike a partial guarantee that leaves lenders bearing a share of any loss.
  2. Borrowers under the Pradhan Mantri Mudra Yojana were kept out of the Emergency Credit Line Guarantee Scheme because their loans were already covered by CGFMU.
  3. CGFMU and CGTMSE draw on one common corpus, differing only in the size of loan each covers.
  • A. 1 only
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1 and 3 only

Q6. Suppose the guarantee cover on a portfolio of collateral-free micro loans is raised from a partial share to the entire amount in default, with no guarantee fee and no repayment-history condition for borrowers. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. Lenders' incentive to screen applicants carefully and monitor loans after disbursal would weaken.
  2. Part of the loss that lenders now bear on bad loans would shift to the fund, and ultimately to the government that capitalises it.
  3. Defaults in the portfolio would tend to rise even if underlying economic conditions did not change.
  • A. 1, 2 and 3
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1 and 3 only

Q7. With reference to the classification of micro, small and medium enterprises under the composite criteria introduced in 2020, consider the following statements: Which of the statements given above is/are NOT correct?

  1. An enterprise is classified as micro if it satisfies either the investment limit or the turnover limit for that category.
  2. Turnover from exports is excluded while determining the category of an enterprise.
  3. Manufacturing and services enterprises are classified using the same set of limits.
  • A. 2 only
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 3 only

Q8. While extending the Credit Guarantee Fund for Micro Units, a scheme created by executive notification, the Union Cabinet approved a ₹5,000 crore corpus. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. Money for the corpus can be withdrawn from the Consolidated Fund of India only under an appropriation made by law.
  2. The Lok Sabha can scrutinise such spending when the ministry's estimates are presented to it as demands for grants.
  3. Had the fund been created by an Act of Parliament, a Cabinet decision alone could have wound it up without amending that Act.
  • A. 2 and 3 only
  • B. 1, 2 and 3
  • C. 1 and 2 only
  • D. 2 only