Module: General Practice
Q145: From a Banker's perspective, "Cluster-based Lending" involves specific risks and mitigation strategies. Consider the following statements:
Contagion Risk: A downturn in the specific industry sector affects all borrowers in the cluster simultaneously.
Peer Pressure: The close social network within a cluster acts as a moral hazard, increasing willful defaults.
Appraisal Efficiency: Bankers can develop a single "Master Appraisal" template for the entire cluster, reducing processing time.
Which statements are correct?
Peer Pressure: The close social network within a cluster acts as a moral hazard, increasing willful defaults.
Appraisal Efficiency: Bankers can develop a single "Master Appraisal" template for the entire cluster, reducing processing time.
Which statements are correct?
✅ Correct Answer: B
Banker's Analysis:
Statement 1 (True - The Risk): This is "Concentration Risk" or "Contagion Risk." If the cluster is a "Leather Cluster" and the leather industry faces a ban or recession, the entire portfolio suffers.
Statement 2 (False - The Mitigation): The close social network actually reduces willful defaults.
This is called "Social Collateral." Peer pressure ensures members repay to maintain their reputation in the tight-knit community.
Statement 3 (True - The Benefit): Banks save huge costs by understanding the business model once and applying it to hundreds of units (Template lending), drastically cutting "Transaction Costs."
Statement 1 (True - The Risk): This is "Concentration Risk" or "Contagion Risk." If the cluster is a "Leather Cluster" and the leather industry faces a ban or recession, the entire portfolio suffers.
Statement 2 (False - The Mitigation): The close social network actually reduces willful defaults.
This is called "Social Collateral." Peer pressure ensures members repay to maintain their reputation in the tight-knit community.
Statement 3 (True - The Benefit): Banks save huge costs by understanding the business model once and applying it to hundreds of units (Template lending), drastically cutting "Transaction Costs."