In unsecured and MSME lending, risk is often treated as something to be screened out at the point of approval. Scorecards are tuned, rules are tightened, and thresholds are raised in the hope that better underwriting will prevent future losses.

Yet most seasoned lenders know the uncomfortable truth: portfolios rarely fail because of a single bad approval. They fail because risk was assumed to be finished once the loan was disbursed.
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The Practice of Lending reminds us that credit risk is not a gate keeping problem. It is a lifecycle problem. Lending is not an event—it is an ongoing practice that requires discipline, monitoring, and judgment long after the initial decision is made. For CXOs overseeing unsecured and MSME portfolios, this distinction is critical.
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Unsecured lending amplifies every weakness in a system. Without collateral, lenders are exposed not just to financial risk, but to behavioral risk, operational blind spots, and delayed signals. The book’s central message is clear: strong portfolios are not built by eliminating risk, but by continuously managing it.
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Credit Analysis Beyond Ratios
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One of the book’s most important contributions is its insistence that credit analysis begins with understanding cash flow—not just financial statements. Ratios may look healthy, but they often lag reality, especially in MSME businesses where revenue cycles, customer concentration, and working capital pressures shift rapidly.
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In unsecured MSME lending, this gap becomes dangerous. Borrowers may technically qualify on paper while operating under invisible stress—delayed receivables, seasonal shocks, or dependency on a single buyer. The book argues that effective lenders look beyond reported numbers to understand how money actually moves through the business. This is not about abandoning structure.

It is about recognizing that numbers without context create false confidence. Judgment—grounded in business understanding—is what turns analysis into risk management.
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Judgment vs Models: Where Risk Actually Lives
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Modern lenders understandably rely on models, automation, and rules to scale. But The Practice of Lending is explicit: models assist judgment; they do not replace it. In unsecured portfolios, over-reliance on models can be particularly dangerous because borrower behavior changes faster than models adapt.
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Models capture historical patterns. Risk, however, emerges in real time.
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When growth accelerates, approval rates rise, and portfolios expand quickly, early warning signs are often dismissed as noise. This is where disciplined lenders differ from reactive ones.

They recognize that risk rarely announces itself through defaults—it appears first as subtle behavioral shifts: delayed repayments, changes in transaction patterns, reduced engagement, or inconsistent communication.

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