We report the first, to our knowledge, observation of the nonlinear phenomenon known as modulation instability (MI) in a coherently driven fiber resonator pumped at 1972 nm. To compensate for the very high losses in this spectral region, we have integrated a thulium-doped fiber amplifier inside the cavity. Lower losses allow a lower MI threshold, leading to the observation of this phenomenon at a moderate input power. The results align closely with the numerical simulations of the system. Our study shows that active compensation of loss can be implemented in the 2 µm wavelength range to construct fiber ring cavities with high finesse. It paves the way to the observation of more complex nonlinear effects optical frequency comb through cavity soliton generation.