Introduction

Scope Of Micro finance

Indian Context

Indian public policy for rural finance from 1950s to till date mirrors the patterns observed
worldwide. Increasing access to credit for the poor has always remained at the core of Indian
planning in fight against poverty. The assumption behind expanding outreach of financial
services, mainly credit was that the welfare costs of exclusion from the banking sector,
especially for rural poor are very high. Starting late 1960s,

India was home to one of largest state intervention in rural credit market and has been
euphemistically referred to as Social banking‘ phase. It saw nationalization of existing private
commercial banks, massive expansion of branch network in rural 83 areas, mandatory directed
credit to priority sectors of the economy, subsidised rates of interest and creation of a new set
of rural banks at district level and an Apex bank for Agriculture and Rural Development
(NABARD20) at national level.

These measures resulted in impressive gains in rural outreach and volume of credit. As a result,
between 1961 and 2000 the average population per bank branch fell tenfold from about 140
thousand to 14000 (Burgess & Pande, 200521) and the share of institutional agencies in rural
credit increased from 7.3% 1951 to 66% in 1991. These impressive gains were not without a
cost. Government interventions through directed credit, state owned Rural Financial Institutions
(RFI) and subsidised interest rates increased the tolerance for loan defaults, loan waivers and
lax appraisal and monitoring of loans.

The problem at the start of 1990s looked twofold, the institutional structure was neither
profitable in rural lending nor serving the needs of the poorest. In short, it had created a
structure, ‗quantitatively impressive but qualitatively weak‘.

Microcredit emergence in India has to be seen in this backdrop for a better appreciation of
current paradigm. Successful microfinance interventions across the world especially in Asia and
in parts of India by NGOs provided further impetus. In this backdrop, NABARD‘s search for
alternative models of reaching the rural poor brought the existence of informal groups of poor
to the fore. It was realised that the poor tended to come together in a variety of informal ways
for pooling their savings and dispensing small and unsecured loans at varying costs to group
members on the 84 basis of need. This concept of Self-help was discovered by
socialdevelopment NGOs23 in 1980s.

Realizing that the only constraining factor in unleashing the potential of these groups was
meagreness of their financial resources, NABARD designed the concept of linking these groups
with banks to overcome the financial constraint.

The programmed has come a long way since 1992 passing through stages of pilot (1992-1995),
mainstreaming (1995-1998) and expansion phase (1998 onwards) and emerged as the world‘s
biggest microfinance programmed in terms of outreach, covering 1.6 million groups as on
March, 200524.

It occupies a pre-eminent position in the sector accounting for nearly 80% market share in India.
Under the programmed, popularly known as SHG-Bank Linkage programmed there are broadly
three models of credit linkage of SHGs with banks.
However, the underlying design feature in all remains the same i.e. identification, formation and
nurturing of groups either by NGOs/other development agencies or banks, handholding and
initial period of inculcating habit of thrift followed by collateral free credit from bank in
proportion to the group‘s savings. In accordance with the flexible approach, the decision to
borrow, internal lending and rate of interest are left at the discretion of group members.

Its design is built on combining the ―collective wisdom of the poor, the organizational
capabilities of the social intermediary and the financial strength of the Banks‖.
The success factors of the programme lie in it being beneficial for both banks and clients –
another example of Win-Win proposition. The programme is an attractive 85 proposition for
banks due to high recovery rates and lowering of transaction costs by outsourcing costs
associated with monitoring and appraisal of loans.

Records show recovery rate as high as 95% for loans extended by banks to SHGs and a study
sponsored by FDC26, Australia, it was observed that the reduction in costs for the bankers is

2
around 40 % as compared to earlier loans under Integrated Rural Development Programmed
(IRDP).

Similar findings in respect of commercial benefit of SHG lending to banks were reported by
Siebel & Dave (2002)27.
The programmer’s exclusive focus on reaching those sections of population, who were hitherto
out of reach of financial system has increased the coverage of poor. Non reliance on physical
collateral and total flexibility in loan purpose and amount has also resulted in increased coverage
of the poor and the marginalized.

The programmed has received strong public policy support from both Government of India
and Reserve Bank of India. The importance attached to it by Government is exemplified by
mention of yearly targets by Finance Minister in his annual budget speech as well as
introduction of similar group based lending approach in government‘s poverty alleviation
programmed. The success of the programmed in reaching financial services to the poor has
won international admiration.

World Bank policy paper28 hails the programme and states that it is particularly suited to
India because the model capitalises on country‘s vast network of rural bank branches that are
otherwise unable to reach the rural poor.

Further summarizing the findings at the cost of over simplification, it can be said thatwhile the
programme had definite impact on building of social capital, it had marginal impact on income
levels. At this point it is useful to clarify that positive contribution on social sphere is by itself
a significant achievement, however the problem lies withextension of positive impact to
economic activities. The findings sit uneasily with earlier evaluations of the programme in
respect of economic impact, while being in consonance with social impact. Puhazhendhi &
Satyasai (2000)31 in their study commissioned by NABARD covered 223 SHGs spread over
11 states across India.

The study found that 58.6% of sample households registered an increase in assets from pre to
post SHG situation, an additional 200 economic activities taken up by sample households and
decrease in the percentage of sample households with annual income levels of Rs.22500 from

3
73.9% to 57%. Another study32 commissioned by NABARD in 2002 with financial assistance
from SDC33, GTZ34 and IFAD 35covered 60 SHGs in Eastern India.

The findings of this study also corroborate the findings of earlier evaluation with 23% rise in
annual income and 30% increase in asset ownership among 52% of sample households. World
Bank policy research paper (ibid) 2005 details the findings of Rural Finance Access Survey
(RFAS) done by World Bank in association with NCAER36. The RFAS covered 736 SHGs in
thestates of Andhra Pradesh and Uttar Pradesh and also points to positive economic m90 impact.

The findings indicate 72% average increase in real terms in household assets, shift in borrowing
pattern from consumption loans to productive activities and 33% increase in income levels.
The divergence of field research findings demands a situational analysis of the fieldstudy
findings. The study sites exhibited certain common features, which can be said to be true of
most of Indian rural landscape. The major occupation of group members was agriculture
supplemented by other activities such as farm labour, factory labour and poultry.
Being rain fed areaa, lack of irrigation facilities, declining terms of trade in agriculture and
fragmentation of land have accentuated their vulnerabilities over a period of time.

The group members lacked any specific handicraft skills and had not received any skills
training for undertaking any other non farm activity. In this scenario, post SHG, the group
members have been content with using the group savings and bank loan as
replacement/reduction of costly borrowings from informal sources. The high rate of internal
lending reflected in bank and group records was used by them for meeting their consumption
and emergency requirements.

Detailed interaction revealed that group members do not have the confidence to use credit for
productive purposes in view of lack of opportunities and partly also ingrained through their past
borrowing experience. Irrigation and depressed commodity prices act as deterrent in farm sector
investments, while lack of skills and invasion of rural markets by big consumer goods
companies reduce the scope for rural micro enterprises.

It is 91 striking that while globalization is exerting pressure on national level companies, their
penetration into rural markets is reducing the market sphere for rural enterprises.

4
In this scenario, it seems rather naïve to visualize flourishing of microenterprises through
provision of microcredit. Dichter (2006)37 in his paper drawing on African experience rightly
draws attention to both these aspects by pointing to the ―infertile context‖ of rural settings and
says ―if the large majority of us in the advanced economies are not entrepreneurs, and have
had in our past little sophisticated contact with financial services, and if most of us use credit,
when we do, for consumption, why do we make the assumption that in the developing countries,
the poor are budding entrepreneurs….‖.Microfinance is defined as provision of thrift, credit and
financial services and products of very small amount to the poor in rural, semiurban or urban
areas for enabling them to raise their income levels and improving their living standards (Small
amount is conceived upto Indian Rupees Rs.50,000/- for the present).

Microfinance per se has been century old phenomenon in India with emergence of cooperative
banking in the beginning of 20th century.
There have been policy initiatives,institutional thrust and efforts on the part of policy makers,
development institutions and implementing agencies for furtherance of microfinance services
over the years in the context of vast socially disadvantaged and financially excluded population.
A series of policy measures were taken by the Govt. of India in the financial sector, which have
facilitated intensification and deepening of microfinance. These included nationalization of
commercial banking sector in 1969, setting-up of Regional Rural Banks (RRBs) in 1975,
reforms of financial sector (since 1991), implementation ofpro-poor schemes/programmers
through credit delivery system, etc.
Similarly, Reserve Bank of India‘s (RBI) (the Central Bank of the Country) initiatives in terms
of fo cus on expansion of rural branches of banks, priority sector norms, financial inclusion,
etc., had positive bearing on microfinance development.
The priority sector norms envisaged that 40% of Net Bank Credit should be directed towards
the identified sectors/activities of which 18% for agriculture, 10% for weaker sections, etc.
Withover 6,00,000 villages and 74% of poor people living in rural areas, microfinance
continued to be the major challenge for rural credit. Thus, the formal financial sector which
consists of about 36000 rural and semi-urban branches of Commercial banks, 14000 branches
of RRBs, 13,000 branches of Cooperative Banks and over a hundred thousands of rural
Cooperative Societies have been engaged in rural credit and the bulk of their loan accounts are
small size loans within the purview of microfinance.
National Bank for Agriculture and Rural Development (NABARD) was set-up by an Act of

5
Parliament in 1982 for pursuing the mandate of ‗integrated rural development‘ through triple
major functions- financial, developmental and supervisory.
It also played catalytically role in the microfinance development1.2. Despite the phenomenal
expansion of the organised banking system and continued thrust on pro-poor policies and
schemes till 80‘s, a large segment of the poor continued to remain excluded from the banking
system. The traditional misconception about the banking with poor that they cannot save, not
credit-worthy and cannot manage business enterprise, prevailed supreme during the period .
Moreover, there were serious aberrations affecting timely and adequate credit delivery to the
poor through conventional lending procedure, system and schemes. The impact of poverty
alleviation programmers was diluted because of poor targeting, mismatch between borrowers‘
capabilities and purpose of loans, lack of linkage with other support system, leakages at various
levels, lack of voluntary participation on account of directed credit, inadequacy of loan and
consequent substandard asset creation.
NABARD initiated search for alternative policy, systems, procedures, savings and 10 loan
products, other complementary services and new delivery mechanism that would fulfill the
requirements of the poor and disadvantaged. 1.3. The Self-Help Groups (SHGs) - Bank Linkage
Programme (SHG-BLP) was conceptualized and launched by NABARD in 1992 as a pilot with
500 SHGs combining the mutual strength of formal credit institutions and informal agencies
(SHGs).
The linkage concept involves forming small, cohesive and participative groups of the poor,
encouraging them to pool their savings regularly and using the pooled savings to make small
interest-bearing loans to members and in the process, learning the nuances of financial
discipline. The SHGs first get saving linked with banks and with banks gaining confidence with
the group dynamics and their internal lending processes, provide credit in proportion to the
savings. The success of programme exploded all myths regarding the Banking with Poor.

Recognising its potential innovation for providing access to microfinance in a cost-effective,

hasslefree and timely manner to the poor, the programme was mainstreamed in 1996.

Theprogramme was made part of priority sector and normal lending business of the banks. With
the policy support of Reserve Bank of India, continued multipronged promotional efforts and
leadership of NABARD, participation of all other stakeholders - Self Help Promoting Institution
(SHPI), financing banks, Govt. etc., theSHG-BLP continues to flourish.
6
The programme has become a national movement with more than 6.12 million SHGs having
been saving-linked with savings of 11 Rs.54456.20 million and more than 4.24 million SHGs
credit linked with loan outstanding of Rs.226808.5 million as on 31 March 2009.

It is the largest microfinance programme in the world in terms of outreach covering nearly 86
million households, largest financial inclusion programme in India. SHGs have become the
common vehicle of development process, converging all development and livelihood
programmes.

The programme has transformed the rural financial institutions and their approaches to
microfinance delivery to the poor, led to emergence of large number of SHPIs, Federations,
Business Facilitators and above all, ushered socio-economic empowerment of the poor,
particularly women. The massive growth of the programme has brought to the fore several new
issues and challenges e.g., ensuring balanced distribution of SHGs across the regions,
microenterprise promotion for matured SHGs/members, sustenance of quality of SHGs, etc.

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“MEANING AND DEFINATION OF MICROFINANCE IN INDIA”

Microfinance is a way in which loans, credit, insurance, access to savings accounts, and
money transfers are provided to small business owners and entrepreneurs in the
underdeveloped parts of India. The beneficiaries of microfinance are those who do not
have access to these traditional financial resources.

Microfinance is the provision of financial services to low-income clients, including

consumers and the self-employed, who traditionally lack access to banking and related
services.

Robinson (2001), defines Microfinance as “small-scale financial services for both credits and
deposits– that are provided to people who farm or fish or herd; operate small or micro
enterprises where goods are produced, recycled, repaired or traded; provide services; work for
wages or commissions; gain income from renting out small amounts of land, vehicles, draft
animals, or machinery and tools; and to other individuals and local groups in developing
countries, in both rural and urban areas”.

Asian Development Bank (ADB) defines microfinance as “the provision of a broad

range of financial services such as deposits, loans, money transfers, and insurance to
small enterprise and households.” CGAP (2003) defines microfinance as “a credit
methodology that employs effective collateral substitutes to deliver and recover short-
term working capital loans to micro entrepreneurs.”

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NABARD (2000) defined micro finance as the “provision of thrift, credit and other
financial services and products of very small amounts to the poor in rural semi – urban
or urban areas enabling them to raise their income levels and improve living standards”.
The reserve bank of India (RBI) uses the same definition (RBI 1999).

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 DIFFERENT MODELS OF MICROFINANCE

There are two models in India that link the formal financial sector with lending
to low-income households in India, namely: 1. SHG – Bank Linkage Programme
(SBLP): The SBL model is a home grown model of microfinance in India which
was conceptualized and initiated by NABARD in 1996, when it launched nation-
wide pilot projects to link the existing SHGs with banks. 12-15 people form a
group and start an account with a bank.

They start to build up internal funds through thrift and savings. Once this reaches
a substantial level, they begin borrowing from the bank This model involves the
SHGs financed directly by the banks viz., CBs (Public Sector and Private Sector),
RRBs and Cooperative Banks. 2. MFI – Bank Linkage Programme (MLP): Micro
Finance Institutions (MFIs) act as an important conduit for extending financial
services to the sector in the country by raising resources from Banks and other
institutions and extending loans to JLG / members. This model covers financing
of Micro Finance Institutions (MFIs) by banking agencies for onlending to SHGs
and other small borrowers MFIs are of different legal entities viz. NGO MFIs -
registered under the Societies Registration Act, 1860 or the Indian Trusts Act,
1880.

Cooperative MFIs - registered under the State Cooperative Societies Act or

mutually aided Cooperative Societies Act or Multi State Cooperative Societies
Act. NBFC MFIs incorporated under Section 25 of Companies Act, 1956.
NBFC MFIs incorporated under the Companies Act, 1956 and registered with
RBI.

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IMPACT OF POLICIES AND REGULATION ON MICROFINANCE :

For long MFIs were not under the umbrella of any regulations and as a result of
which they could achieve financial inclusion but with time and the industry
maturing the need of regulation has been felt. The academic literature provides a
number of important justifications, including the following:

(1) the protection of the country’s financial system and small depositors;
(2) addressing the consequences of rapid growth and fast commercialization of
the microfinance sector;
(3) consumer protection and the fight against abusive interest rates;
(4) the entry of new providers and credit delivery mechanisms in the
microfinance sector;
(5) lessons from the recent financial crisis; and
(6) fraud and financial crime crisis (Pouchous 2012).

Franks (2000) studied the impact of macroeconomic stabilization on MFIs and

concluded that economic stability is beneficial in the long run for the
sustainability of the MFIs though they may seem costly in the short run. This has
further been supported by Quinones and Siebel (2000) who studied the Philippine
MFIs and stated that regulatory and supervisory framework have a positive
impact on the poor households. Mcguire (1999) considers the impact of policy
and regulatory environment on MFIs in Asia.

The study is conducted on 9 countries of Asia-Philippines, India, Bangladesh,

Nepal, Pakistan, Indonesia, Malaysia, Sri Lanka and Thailand across 11 criteria
measuring “good practise” in policy and regulatory framework which includes
policies and regulation from the government and donor agencies. The
methodology involved interviewing 250 microfinance practitioners, regulators,
bankers and regulators and review of literature for each region.

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The study concludes that Philippines and Bangladesh have the most conducive
environment for long term sustainability of MFIs while Pakistan has the least.
Hartarska and Nadolnyak (2007) explored the impact of regulation on 114 MFIs
performance from 62 countries using an empirical model where performance is
specified as a function of MFI-specific, regulatory, macroeconomic and
institutional variables. The study concludes that regulatory involvement does not
affect either the operational self sufficiency or outreach.

The study also supports that less leveraged firms have better sustainability. The
author feels that as collection of savings help reach more borrowers, the
regulations do encourage savings and thus increase the outreach. Haratarska
(2009) used a database of 108 MFIs operating in 30 countries and studied the
impact of market forces and regulation on the performance where performance is
measured by outreach and sustainability and found that regulatory status and
controls do not impact performance though it is mentioned in the research that
credit rating agencies may play a disciplining role.

The study does mention that due to lack of external control, it is important for
MFIs to have a greater internal governance mechanism for sustainability. Impact
of Microfinance-Economic and Social In this section an attempt has made to
review the literature to access the impact of Microfinance as measured by its
impact on alleviating poverty by measuring impact on clients, their enterprises,
households and the communities they live in. It is seen that MFIs tend to impact
both household and community.

that microfinance has brought in a positive change in the economic and social
status of the borrowers. The results showed that for 98 percent of the borrowers,
their income had increased; 29 percent of them have been able to purchase new
land either for agriculture or for building a house in the village, the results were
12
also seen in the improvement of child education in 75 percent of the borrowers
and sanitation conditions improved for 69 percent.

The credit of improvement was due to self-employment of women participants.

Todd (2001) undertook to explore the impact of SHARE Microfinance Ltd. on
clients of Andhra Pradesh, India. The study was a comparison of 125 clients of
SHARE with 104 who were yet to experience the programme. All the SHARE
clients had participated in the programme for at least three years. He proposed a
poverty index to measure the extent to which clients had moved out of poverty.
The index covered four variables- sources of income, productive assets, housing
quality, and household dependency burden (the number of household members
divided by the number of income earners).

The study concluded that 76.8 percent of the total clients had experienced in
reduction in poverty; 38.4 percent shifted from extremely poor condition to
moderate poor category and 17.6 percent had moved out of poverty. Mayoux
(2001) states that the main effects of microfinance on poverty have been-
significant increase in the income of poor including women and contributing 130
Sandhya Prakash and Amarjeet Kaur Malhotra to smoothing out peaks and
troughs in income and expenditure thereby enabling the poor to cope with volatile
situations like drought, death etc.

Kabeer (2003) states that apart from economic impact, microfinance has a wide
social impact and MFI should be aware of the “full range of changes associated
with its efforts and uses these to improve its performance”. She considers social
impact to relate to human capital such as nutrition, health and education, as well
as social networks. Impact must be assessed on each of these issues if a true
picture of the impact of microfinance is to be obtained.

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Zohir and Matin (2004) in their study state that MFIs not only help in poverty
alleviation but the groups created for availing the microfinance facility also
contribute beyond finance, such as, it brings in a sense of community, reliance
and trust among the members. These networks can lay the foundations for other
social capital developments in the community. They state that examples of
cultural impacts of social intermediation that affect the greater community such
as standing against dowry, domestic violence and respect to women. Study
conducted by UNCDF (2004) states that Microfinance plays three important roles
in development of society. •

It helps very poor households meet basic needs and protect against risks, • It is
associated with improvement in household economic welfare, • It helps to
empower women by supporting them economically and hence promote gender
equity. Chawla (2013) reviews Indian MFIs literature to see the impact of
regulations on MFIs in India. This study is done post the Andhra crisis where
many farmers in the state of Andhra Pradesh had committed suicide due to
inability to pay the high interest rate charged by unregulated MFIs. Author feels
that due to trajectory growth of the microfinance in India, it is time for regulations
to be imposed on MFIs as it will be beneficial for all the stakeholders. The study
further highlights the importance of Microfinance bill 2012 and the role it played
in streamlining many processes including fixing of interest rates that can be
charged by the MFIs.

The author recommends that MFIs should bring transparency in the interest rates
charged, introduction of technology to reduce the operating costs and lastly
access to alternate sources of fund to reduce cost of capital.

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 CONCEPT OF MICROFINANCE

Microfinance enables the poor and excluded section of people in the society who
do not have an access to formal banking to build assets, diversity livelihood
options and increase income, and reduce their vulnerability to economic
stress. In the past, it has been experienced that the provision for financial
products and services to poor people by MFIs can be practicable and sustainable
as MFIs can cover their full costs through adequate interest spreads and by
operating efficiently and effectively.

Microfinance is not a magic solution that will propel all of its clients out of
poverty. But various impact studies have demonstrated that microfinance is
really benefiting the poor households (Littlefield and Rosenberg, 2004).

The Asian Development Bank (2000) defines microfinance as the provision of

broad range of services such as savings, deposits, loans, payment services,
money transfers and insurance to poor and low income households and their
micro-enterprises.
This definition of microfinance is not restricted to the below poverty line
people but it includes low income households also. The taskforce on
Supportive Policy and Regulatory Framework for Microfinance constituted
by NABARD defined microfinance as “ the provision of thrift, saving, credit
and financial services and products of very small amount to the poor’s in rural,
semi urban and urban areas for enabling them to raise their income level
and improve their standard of living.” (Sen, 2008) . Microfinance is defined as a
development tool that grants or provides financial services and products such as
very small loans, savings, micro-leasing, micro-insurance and money transfer
to assist the very or exceptionally poor in expanding or establishing their
businesses (Robinson, 1998).

15
In addition to financial intermediation, some MFIs provide social
intermediation services such as the formation of groups, development of self
confidence and the training of members in that group on financial literacy
and management (Ledgerwood, 1999). There are different providers of
microfinance (MF) services and some of them are; Non Governmental
Organizations (NGOs), savings and loans cooperatives, credit unions,
government banks, commercial banks or non banking financial institutions.

The target group of MFIs are self employed low income entrepreneurs who are;
traders, seamstresses, street vendors, small farmers, hairdressers, rickshaw
drivers, artisans blacksmith etc (Ledgerwood, 1999).

16
 Features of Microfinance:

• Microfinance is a broad category of services, which includes microcredit.

Microcredit is provision of
• credit services to poor clients. Micro credit and micro-finance both are
different. Micro credit is a small
• amount of money, given as a loan by a bank or any legally registered
institution, whereas, Micro-finance
• includes multiple services such as loans, savings, insurance, transfer
services, micro credit loans, etc. for poor people.

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 WHAT ARE THE PROBLEMS OF MICROFINANCE?

Here are Challenges faced by Microfinance

Institutions Over-Indebtedness. ...

• Higher Interest Rates in Comparison to Mainstream Banks. ...

• Widespread Dependence on Indian Banking System. ...

• Inadequate Investment Validation. ...

• Lack of Enough Awareness of Financial Services in the Economy. ...

• Regulatory Issues. ...

• Choice of Appropriate Model

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 RESEARCH QUESTION

1. What is the Micro, Small and Medium Enterprises Development

Fund?

2. What is the purpose of the Fund?

3. What are the activities covered under the Fund?

4. Is it free money?

5. Who are the Participating Financial Institutions (PFIs)?

6. How can I apply for the Fund?

7. What is the interest rate?

8. Do I have to give money or pay any person/agent/ middleman to

access the Fund?

9. What are the eligibility criteria?

10. When can I access the Fund?

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 OBJECTIVE

A case is made, first, for broadening simple economic or financial analysis of

IFAD’s microfinance interventions. Economic analysis of projects focuses on their
contribution to the well-being of the target group, broadly interpreted, while financial
analysis assesses the net monetary benefit to the project or operating entity. Thus the
items considered as costs and benefits differ, as well as their valuation.

A payment in the form of wages, for example, is a financial cost to the

project/operating entity. However, it is an economic cost only to the extent that the
use of labour involves sacrifice of output elsewhere in the economy.

Conversely, a project may have an economic cost in the form of environmental

effects – such as the effect of tubewell schemes on the water table – but no
corresponding financial costs if there is no monetary outflow. Economic costs may
be larger or smaller than financial costs. Similar comments apply to economic and
financial benefits. Economic costs and benefits are measured by shadow prices, and
these differ from the market prices used in financial analysis.

Often this divergence is due to market imperfections.1 IFAD loans and the related
interest payments are financial transfers. However, the investment/expenditure
financed by a loan involves an economic cost. The financial cost of a loan occurs
when the loan is repaid, while the economic cost occurs when the expenditure occurs.

In general, how an investment is financed is irrelevant from the point of view of

economic analysis. No matter how detailed and careful the economic analysis is,
impact assessment must not be confined to narrowly defined economic benefits in
terms of net income gains to beneficiaries of microfinance projects and financial rates
of return to microfinance institutions. The framework for impact assessment should
be broader, as it must embrace both economic and non-economic dimensions of the
well-being of poor people, in line with IFAD’s mandate:

IMPACT

on the incidence and severity of poverty in rural areas (for example, on the dollar
poor); • expansion of opportunities for poor people to shape their own lives;

• enabling them to mitigate the severity of covariate risks (droughts, floods, a

policy regime change in a transitional economy) and idiosyncratic risks or shocks

20
(morbidity, accidents, death of a wage earner); and

• viability of the institutions created (self-help groups, village development

councils, linkages between local institutions and banks or financial intermediaries).
These shocks trigger downward mobility, often propelling whole subsets of the rural
population into long periods of poverty. Thus specific measures of vulnerability have
to be devised for impact assessment (Gaiha and Thapa, 2006, Gaiha and Imai, 2006).
Clearly, these concerns go well beyond conventional economic or financial impact
assessments.

The analytical framework has to be broad enough to address them, and appropriate
tools must be devised for implementing this framework in a specific context. We
shall now see that the broad objectives that Microfinance Institutions
that operate in India strive for

• To promote social and economic development among weaker

sections of the economy

• Strengthen self help groups and use them as a tool towards

economic development

• To promote women empowerment, financial liberation of women

and support women entrepreneurs

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 REDUCE POVERTY.

Simanowitz & Walter (2002, p3)42 correctly observe that ―Microfinance is a

compromise between social and financial objectives. To date most emphasis has
been on financial and institutional performance‖. In order to bring the social
aspect back into microfinance, Imp-Act43 based on three years of action research
covering 30 organizations in 20 countries has been advocating mainstreaming of
Social Performance Management (SPM) to improve the effectiveness of
microfinance in reducing financial exclusion and poverty.

While microfinance may be a winning proposition for banks, the winning

evidence on client‘s side seems doubtful. The institutional approach flowing out
of past negative experiences has shifted the goalpost to financial solvency but in
the process missed the vital link of credit usage.

In this scenario, it can be said with certainty that potential of microfinance to

contribute to achievement of MDGs in India, especially reduction of poverty
remains suspect. Greeley (2005)44 rightly notes that in absence of specific
poverty targeting and mainstreaming of impact assessment, the claims about the
impact of microfinance on the achievement of MDG lacks credibility.

resources are used judiciously and with better targeting.

Adequate emphasis on impact assessment is an integral part of the triangle45 of
factors necessary for judging microfinance intervention.

22
23
 RESEARCH METHODOLOGY

This is a quantitative study based on secondary data which iscollected

from NABARD annual reports, websites, journals etc. In this paper
suitablestatistical techniques such as tables, percentage and diagrams are used to
analyse the data.Numbers of SHGs, savings, bank loan disbursed, bank loans
outstanding are the selectedparameters of SHG- Bank linkage program.

RESEARCH METHODOLOGY
This is a quantitative paper in nature. This is based on literature review and
secondary data collected from reports, websites and journals etc. To
assess the progress of SHG-Bank Linkage program data is collected from
the “Status of microfinance in India” Annual Reports (2011-2018) of NABARD.
For analyzing the data tables, percentage & diagrams are used.
Performance parameters of SHG-Bank Linkage Program

a. Progress in No. of Self-help groups in India.

b. Progress in Savings amount of SHGs in India.

c. Progress in Bank loan disbursed to SHGs in India.

d. Progress in Bank loan outstanding against SHGs in India

This is a quantitative paper in nature. This is based on literature review and

secondary datacollected from reports, websites and journals etc. To
assess the progress of SHG-BankLinkage program data is collected from the
“Status of microfinance in India” Annual Reports(2011-2018) of NABARD.

24
 REVIEW OF LITERATURE:

clients of microfinance responded that there is animprovement in the

quality of food, clothing, education, housing, health services, access to aquality
life and living standard. Morduc & Haley (2002) concluded that there is
sufficient evidence to support the positiveimpact of microfinance on poverty
reduction. Microfinance is able to fulfill the Millennium Development Goals
(MDGs).

Ahlawat (2014) concluded that SHG-Bank linkage program is progressing

in India butgrowth is not much satisfactory in Haryana state. Tripathi
(2014)concluded that the Mehra and Aggarwal (2016) laid down a study to
examine the impact of microfinance oneconomic development. They
concluded that there is an increment in the income,expenditure, and
savings of the women who joined the self-help groups.Goyal, Aggarwal, Gupta
and Kumar (2017) concluded that NABARD SHG-Bank linkageprogram is
growing speedily in India.

This microfinance program is the most popular way tohelp poor people and make
them bankable in India.Kumara and Sharma (2018) told that SHG-Bank linkage
program is the largest microfinanceprogram and it is growing speedily in India.

Seibel, H. D., & Torres, D. (1999), Are Grameen Replications Sustainable, and
Do They Reach the Poor?: The Case of CARD Rural Bank in the Philippines.
Journal of Microfinance/ESR Review, 1(1), 117-130. Sekabira, H. (2013),
Capital structure and its role on performance of microfinance institutions: The
Ugandan case. Sustainable Agriculture Research, 2(3), 86.

Srinivasan R. and Sriram, M.S. (2006), Microfinance in

India:
Discussion,IIMB Management Review. 66-86. Tehulu, T. A. (2013),
Determinants of financial sustainability of microfinance institutions in East
25
Africa. European Journal of Business and Management, 5(17), 152-158. Thapa,
G. B., Chalmers, J., Taylor, K. W., & Conroy, J.

(1992), Banking With the Poor, Report and Recommendations Based on Case
Studies Prepared by Lending Asian Banks and Non Governmental
Organisations. FDC, Brisbane, Australia. Todd, H. (2001), Paths out of Poverty:
The Impact of SHARE Microfin Limited in Andhra Pradesh, India. unpublished
Imp-Act report. UNCDF (2004), Basic Facts about Microfinance, [Online].
Available from 27th August 2015. Vinelli, A. G. (2002), The Management and
Performance of Microfinance Organizations. Harvard University, Cambridge,
Massachusetts. Yaron, J., & Mundial, B.

(1992), Rural finance in developing countries (Vol. 875). World Bank. Zohir, S.,
& Matin, I. (2004), Wider impacts of microfinance institutions: issues and
concepts. Journal of International Development, 16(3), 301-330.
Kumar Vipin et. al. (2015) study concluded that the SHG’s and MFI’s are
playing a vital role in delivery of microfinance services which leads
development of poor and low income people in India. However, slow progress
of graduation of SHG members, poor quality of group functioning, dropout of
members from groups etc., have also been reported various study findings in
different parts of the country, which need to be taken into account while
designing the road map for the next phase of the SHG programmed.
Nikita (2014) study concludes that first time in the year 2012-13 after the launch
of SHGs BLP there is a decline in the number of S HGs who’s saving linked
with banks. The study also finds out there was growth in the loan outstanding
of SHG and which was responsible for increases in NPAs. At last it is found out
that the major share belongs to commercial banks when the agency wise loan
issued to MFI. He suggested that steps should be taken to improve the
performances of programs launched under
Microfinance time to time. Mahanta et. al. (2012) Study revealed that lending to
the poor through microcredit is not the end of the problem but beginning of a
new era.

26
If effectively handled, it can create miracle in the field of poverty alleviation.
But it must be bundled with capacity building programs. Government cannot
abdicate its responsibility of social and economic development of poor and
downtrodden. The absence of any special skills with the clients of microcredit,
the fund is being used in consumption and procurement of non- productive
assets.
Hence it is very important to provide skills development training program like
handicraft, weaving, carpentry, poultry, goat rearing, masonry, bees farming,
vegetable farming and many other agricultural and non-agricultural training.
Government has to play proactive role in this case. People with some special
skills have to be given priority in lending microcredit. These clients should also
be provided with International Academic Journal of Accounting and Financial
Management, Vol. 5, No. 4, pp. 116-128. 118

post loan technical and professional aid for success of their microenterprises. If
government and MFIs act together then microcredit can play a great role in
poverty alleviation.
Maruthi Ram Prasad, Sunitha and Laxmi Sunitha (2011) conducted a study
on Emergency and
Impact of Micro-Finance on Indian Scenario. After the pioneering efforts by
Government, Banks, NGOs, etc the microfinance scene in India has reached in
take off stage. An attempt could be initiated to promote a cadre of new
generation micro-credit leaders in order to strengthen the emergence of
MicroFinance Institution (MFIs), so as to optimize their contribution towards
the growth of the sector and poverty alleviation. Each Indian state could
consider forming multi-party working group to meet with microfinance
leaders and have a dialogue with them about how the policy environment could
be made more supportive and to clear up misperceptions. With one state leading
the way, we need to build on a successful model.

27
 Interpretation :

(a) Savings of SHGs with the Banks: table depicts the saving of SHGs with banks,
as we see, in the year 2009-10, 69.53 lakh SHGs were having a saving account
with the banking sector with saving of 6198.7 crore.

Further, in 2011-12 a total of 79.60 lakh SHGs were having saving account with
saving 6551.41 as against 74.62 lakh SHGs with saving of ` 7016.3 crores in
previous year. It show that there has been decline in amount of saving balances
with the bank to the extent (-6.7%) as compared to previous year.

A similar decline of number of SHGs savings linked to banks has also been
observed in 2012-13 only 73.18 lakh SHGs linked to banks as against 79.60 lakh
a year back. For the first time since the SHG-Bank linkage programme was
launched, there is a decline in the number of SHGs to the extent of (-8.1%) during
the year 2012-13, though the savings harnessed by SHGs grew by 25.4%.
Increasing awareness at the SHG level about the advantage of using the savings
for internal loaning is also partly responsible for the decline in saving balance
with banks.

(b) Loan disbursed by banks: During 2009-10, banks have financed 15.86
lakh SHGs, with bank loans of 14,453.30 crore, but as we see in the year 2010-
11 bank extended fresh loan of 14547.7 crore to 11.96 SHGs. It has been showed
a declining of nearly 25% in the number of SHG as compared to previous year.

28
Further during the year 2012-13 the number of SHGs availing fresh loans by
banks showed an increase of 6.3% and the quantum of fresh loans issued
increased by 24.5% as compared to previous year.

(c) Loan Outstanding with the banks: In the year 2009-10, total number of
48.51 lakh SHGs were having outstanding bank loans of 28,038.28 crore. Further,
the number of SHGs having loans outstanding against them from banks declined
by 9% during the year 2011-12 although the quantum of loans outstanding
increased to `36340 crore (16.4% increase over last year). The growth in the loan
outstanding of SHGs with banks in the year 2012-13 (8.4%) is almost 4 times the
growth in the number of SHGs having outstanding loans with banks (2.2%). So
loan outstanding is responsible for increase in NPAs of SHG loans with banks.

29
Note: Actual number of mFIs availing loans from Banks would be less than the

figures shown as most of mFIs a vail loans from more than one Bank/more than

one loan account. Interpretation : Table 2 highlights that after 3 years of the

mFIcrisis; the MFIs seem to be on the path of regaining the confidence of the

clients as well as with the lending institutions.

Fr esh loans issued to MFIs by Banks showed a 50% increase in the year 2012 -

13 year as compared to previous year, while the number of MFIs having access
to fresh loans declined by 8.4% indicating selective lending by the Banks. But

loan outstanding in banks i n the year 2012 - 13 the highest compared to previous

years.

30
 DATA ANALYSIS & INTERPRETATIONS

Table 3 shows that banks have financed to 471 MFIs with bank loans of `8448.96
crore as against 779 MFIs with bank loans of` 10728.50 crore during 2010-11.
Representing decline in bank loans disbursed. Further, during the same year
(2010-11), the outstanding bank loans against 2315 MFIs was `13730.62 crore.

While in 2009-10, SIDBI had financed to 88 MFIs with financial assistance of `

2665.75 crore and the loan outstanding against 146 MFIs was `3808.20 crore in
the year 2009-10.

As such the total exposure of banks and financial institutions to MFIs as on 2012-
13 was to the tune of `14425.84 crore which show increase in loan outstanding
against MFI. As we see after 2009-10 Commercial Banks (and financial
institutions like SIDBI) are losing their confidence in lending to mFIs is evident
from the fact that the fresh lending to mFIs by banks during the year declined.
There has also been a marginal decline in the number of mFIs availing fresh loans
from Banks.

If the trend continues, this sector is likely to face serious resource crunch and
could affect its outreach plans in the near future. Overall, as we see among the
agencies lending funds to mFIs, the major share belonged to Commercial Banks.

31
 MAJOR ADVANTAGES OF THE MICRO FINANCE:

Microcredit empowers women to become independent because in the past,

women were not able to participate in economic activities. Microfinance
institutions now provide women with the capital they require to start business
projects.

Microfinance also helps to manage the assets of the poor and generates income
through microfinance. Microfinance helps the poor people get access or save
funds over a period of time with low interest rates.

Also, the poor could solve their own issues by working together as a community
and this creates trust and social capital in their communities. It also leads to
stability and growth in their households, as well as their communities.

NABARD has also been encouraging voluntary agencies, bankers, socially

spirited individuals, other formal and informal entities and also government
functionaries to promote and nurture SHGs Micro finance institution reduced
dependence of SHGs on local money lenders fully or partially.

Loans given by banks to the groups 1-3 times higher than the saving of the
groups.

NGO and other government department also provide skill training to SHG
members which prove beneficial for group members. For example after receiving
32
training in animal husbandry the SHG convinced the local banker for a small loan
for every member of an SHG for dairying. Realising that private milk vendors are
exploiting the dairy farmers, they decided to take over a defunct Milk society in
the area and started collecting milk from all members and sell it to the Apex Milk
Cooperative Federation.

The individual member’s daily income shot up from `50 to `84 daily and with it
came a hope for the future of their family for a better standard of living, better
education for the children and equally important is the transformation it brought
about in the social status of the women members in the family and in the
community. Today, the entire village is rejoicing at the success of these women

in the village

33
 CONCLUSION

The Indian economy at present is at a crucial juncture, on one hand, the optimists
are talking of India being among the top 5 economies of the world by 205047 and
on the other is the presence of 260 million poor forming 26 % of the total
population.

The enormity of the task can be gauged from the above numbers and if India is to
stand among the comity of developed nations, there is no denying the fact that
poverty
alleviation & reduction of income inequalities has to be the top most
priority.India‘s achievement of the MDG of halving the population of poor by
2015 as well as achieving a broad based economic growth also hinges on a
successful poverty alleviation strategy.

In this backdrop, the impressive gains made by SHG-Bank linkage programme in

coverage of rural population with financial services offers a ray of hope. The
paper argues for mainstreaming of impact assessment and incorporation of local
factors in service delivery to maximize impact of SHG –Bank linkage programme
on achievement of MDGs and not letting go this opportunity.After the pioneering
efforts of the last ten years, the microfinance scene in India has reached a takeoff
point.

With some effort substantial progress can be made in taking MFIs to the next
orbit of significance and sustainability. This needs innovative and forwardlooking
policies, based on the ground realities of successful MFIs. This, combined with a
commercial 119 approach from the MFIs in making microfinance financially
sustainable, will make this sector vibrant and help achieve its single-minded
mission of providing financial services to the poor.

An attempt has been made in this article to review the available literature in the
area of microfinance. Approaches to microfinance, issues related to measuring
social impact versus profitability of MFIs, issue of sustainability, variables
impacting sustainability, affect of regulations of profitability and impact
assessment of MFIs have been summarized in the above article.

We hope that the above review of literature will provide researchers a platform
for further research and help the Microfinance–A Comprehensive Review of

34
Literature 131 industry to combine theory and practice to take microfinance
forward and contribute to alleviating the poor from poverty.
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'deja vu', World Development 20, 1463-1470

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and Evaluation of Agricultural Credit Pprojects." American Journal of
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Informal Groups: A Promising Financial Market Innovation,"Savings and
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rural financial markets,"in Seminar on Farm Credit (Tokyo: 1987).

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savings and credit associations in Bolivia,"Savings and Development. 13,
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too little through rural financial markets," (Columbus, Ohio: Ohio State
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Income Countries: Recent controversies and Lessons,"World
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LowIncome Countries, Westview, Boulder.

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• Adams, Dale W. 1973. "The Case for Voluntary Savings Mobilization:

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488-500.

LINE CHART

A line chart is a graphical representation of an asset's historical price action

that connects a series of data points with a continuous line. This is the most
basic type of chart used in finance, and it typically only depicts a security's
closing prices over time.

KEY TAKEAWAYS

• A line chart is a type of chart that displays information as a series of data

points connected by straight line segments.
• A line chart is a way of visually representing an asset's price history using
a single, continuous line.
• A line chart is easy to understand and simple in form, typically only
depicting only changes in an asset's closing price over time.
• Because line charts usually only show closing prices, they reduce noise
from less critical times in the trading day, such as the open, high, and low
prices.
• Because of its simplicity, however, traders looking to identify patterns or
trends may opt for chart types with more information, such as a
candlestick.

40
41
 Bar Chart

A bar chart or bar graph is a chart or graph that presents categorical data with
rectangular bars with heights or lengths proportional to the values that they
represent. The bars can be plotted vertically or horizontally. A vertical bar chart
is sometimes called a column chart.

A bar graph shows comparisons among discrete categories. One axis of the chart
shows the specific categories being compared, and the other axis represents a
measured value. Some bar graphs present bars clustered in groups of more than
one, showing the values of more than one measured variable.

42
 CANDLESTICK CHART

A candlestick chart (also called Japanese candlestick chart) is a style of

financial chart used to describe price movements of

a security, derivative, or currency.

It is similar to a bar chart in that each candlestick represents all four important

pieces of information for that day: open and close in the thick body; high and low

in the “candle wick”. Being densely packed with information, it tends to represent

trading patterns over short periods of time, often a few days or a few trading

sessions.

The area between the open and the close is called the real body, price excursions

above and below the real body are shadows (also

called wicks). Wicks illustrate the highest and lowest traded prices of an asset

during the time interval represented. The body illustrates the opening and closing

trades.

The price range is the distance between the top of the upper shadow and the

bottom of the lower shadow moved through during the time frame of the

candlestick. The range is calculated by subtracting the low price from the high

price.

43
44
 POINT & FIGURE CHART

A point-and-figure chart plots price movements for stocks, bonds,

commodities, or futures without taking into consideration the passage of time.

Contrary to some other types of charts, like candlesticks, which mark the

degree of an asset's movement over set time periods, P&F charts utilize

columns consisting of stacked X's or O's, each of which represents a set

amount of price movement. The X's illustrate rising prices, while O's represent

a falling price.

Technical analysts still utilize concepts such as support and resistance, as well

as other patterns, when viewing P&F charts. Some argue that support and

resistance levels, as well as breakouts, are more clearly defined on a P&F chart

since it filters out tiny price movements and is less susceptible to false

breakouts.

45
KEY TAKEAWAYS

• An X is created when the price moves higher by a set amount, called

the box size.

An O is created when the price drops the box size amount.

• X's and O's stack on top of each other, respectively, and will often form

a series of X's or O's.

• The box size is set based on the asset's price and the investor's
preference.

• The formation of a new column of X's or O's occurs when the price

moves contrary to its current trend, and does so by more than the

reversal amount.

46
 HEAD & SHOULDER

A head and shoulders pattern is a chart formation that appears as a baseline

with three peaks, where the outside two are close in height and the middle is

highest. In technical analysis, a head and shoulders pattern describes a

specific chart formation that predicts a bullish-to-bearish trend reversal.

The head and shoulders pattern is believed to be one of the most reliable

trend reversal patterns. It is one of several top patterns that signal, with

varying degrees of accuracy, that an upward trend is nearing its end.

47
KEY TAKEAWAYS

• A head and shoulders pattern is a technical indicator with a chart

pattern of three peaks, where the outer two are close in height and the

middle is the highest.

• A head and shoulders pattern—considered one of the most reliable

trend reversal patterns—is a chart formation that predicts a bullish-to-

bearish trend reversal.

48
 CUP & HANDLE

A cup and handle price pattern on a security's price chart is a technical

indicator that resembles a cup with a handle, where the cup is in the shape of

a "u" and the handle has a slight downward drift. The cup and handle is

considered a bullish signal, with the right-hand side of the pattern typically

experiencing lower trading volume. The pattern's formation may be as short

as seven weeks or as long as 65 weeks.

49
 DOUBLE TOP & BOTTOM

Double top and bottom patterns are chart patterns that occur when the

underlying investment moves in a similar pattern to the letter "W" (double

bottom) or "M" (double top). Double top and bottom analysis is used in

technical analysis to explain movements in a security or other investment,

and can be used as part of a trading strategy to exploit recurring patterns.

KEY TAKEAWAYS

• Double tops and bottoms are important technical analysis patterns used

by traders.

• A double top has an 'M' shape and indicates a bearish reversal in trend.
• A double bottom has a 'W' shape and is a signal for a bullish price

movement.

50
51
Understanding Double Tops and Bottoms

Double top and bottom patterns typically evolve over a longer period of time,

and do not always present an ideal visual of a pattern because the shifts in prices

don't necessarily resemble a clear "M" or "W". When reviewing the chart

pattern, it is important for investors to note that the peaks and troughs do not

have to reach the same points in order for the "M" or "W" pattern to appear.

Double top and bottom patterns are formed from consecutive rounding tops and

bottoms. These patterns are often used in conjunction with other indicators since

rounding patterns in general can easily lead to fakeouts or mistaking reversal

trends.

Double Top Pattern

A double top pattern is formed from two consecutive rounding tops. The first

rounding top forms an upside-down U pattern. Rounding tops can often be an

indicator for a bearish reversal as they often occur after an extended bullish

rally. Double tops will have similar inferences. If a double top occurs, the

second rounded top will usually be slightly below the first rounded tops peak

indicating resistance and exhaustion. Double tops can be rare occurrences with

their formation often indicating that investors are seeking to obtain final profits

from a bullish trend. Double tops often lead to a bearish reversal in which

traders can profit from selling the stock on a downtrend.

52
 TRIANGLE

A triangle is a chart pattern, depicted by drawing trendlines along a

converging price range, that connotes a pause in the prevailing trend.

Technical analysts categorize triangles as continuation patterns.

KEY TAKEAWAYS

• In technical analysis, a triangle is a continuation pattern on a chart that

forms a triangle-like shape.

• Triangles are similar to wedges and pennants and can be either a

continuation pattern, if validated, or a powerful reversal pattern, in the

event of failure.

53
There are three potential triangle variations that can develop as price

action carves out a holding pattern, namely ascending, descending, and

symmetrical triangles.

54
Understanding Triangle Patterns

Triangle patterns are aptly named because the upper and lower trendlines

ultimately meet at the apex on the right side, forming a corner. Connecting the

start of the upper trendline to the beginning of the lower trendline completes the

other two corners to create the triangle. The upper trendline is formed by

connecting the highs, while the lower trendline is formed by connecting the

lows.

Triangles are similar to wedges and pennants and can be either a continuation

pattern, if validated, or a powerful reversal pattern, in the event of failure. There

are three potential triangle variations that can develop as price action carves out

a holding pattern, namely ascending, descending, and symmetrical triangles.

Technicians see a breakout, or a failure, of a triangular pattern, especially on

heavy volume, as being potent bullish/bearish signals of a resumption, or

reversal, of the prior trend.

Traders should watch for a volume spike and at least two closes beyond the

trendline to confirm the break is valid and not a head fake. Symmetrical

triangles tend to be continuation break patterns, meaning that they tend to break

in the direction of the initial move before the triangle formed. For example, if

an uptrend precedes a symmetrical triangle, traders would expect the price to

break to the upside.

55
 FLAGS & PEANUTS

A triangle is a chart pattern, depicted by drawing trendlines along a converging

price range, that connotes a pause in the prevailing trend. Technical analysts

categorize triangles as continuation patterns.

KEY TAKEAWAYS

• In technical analysis, a triangle is a continuation pattern on a chart that

forms a triangle-like shape.

• Triangles are similar to wedges and pennants and can be either a

continuation pattern, if validated, or a powerful reversal pattern, in the

event of failure.
56
 • There are three potential triangle variations that can develop as price

action carves out a holding pattern, namely ascending, descending, and

symmetrical triangles.

Understanding Triangle Patterns

Triangle patterns are aptly named because the upper and lower trendlines

ultimately meet at the apex on the right side, forming a corner. Connecting the

start of the upper trendline to the beginning of the lower trendline completes the

other two corners to create the triangle. The upper trendline is formed by

connecting the highs, while the lower trendline is formed by connecting the

lows.

Triangles are similar to wedges and pennants and can be either a continuation

pattern, if validated, or a powerful reversal pattern, in the event of failure. There

are three potential triangle variations that can develop as price action carves out

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a holding pattern, namely ascending, descending, and symmetrical triangles.

Technicians see a breakout, or a failure, of a triangular pattern, especially on

heavy volume, as being potent bullish/bearish signals of a resumption, or

reversal, of the prior trend.

Type of Triangles

• Ascending Triangle: An ascending triangle is a breakout pattern that

forms when the price breaches the upper horizontal trendline with rising

volume. It is a bullish formation. The upper trendline must be

horizontal, indicating nearly identical highs, which form a resistance

level. The lower trendline is rising diagonally, indicating higher lows as

buyers patiently step up their bids. Eventually, the buyers lose patience

and rush into the security above the resistance price, which triggers

more buying as the uptrend resumes. The upper trendline, which was

formerly a resistance level, now becomes support.

• Descending Triangle: A descending triangle is an inverted version of the

ascending triangle and considered a breakdown pattern. The lower

trendline should be horizontal, connecting near identical lows. The

upper trendline declines diagonally toward the apex. The breakdown

occurs when the price collapses through the lower horizontal trendline

support as a downtrend resumes. The lower trendline, which was

support, now becomes resistance.

• Symmetrical Triangle: A symmetrical triangle is composed of a

diagonal falling upper trendline and a diagonally rising lower trendline.

As the price moves toward the apex, it will inevitably breach the upper

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 trendline for a breakout and uptrend on rising prices or breach the lower

trendline forming a breakdown and downtrend with falling prices.

Traders should watch for a volume spike and at least two closes beyond the

trendline to confirm the break is valid and not a head fake. Symmetrical

triangles tend to be continuation break patterns, meaning that they tend to break

in the direction of the initial move before the triangle formed. For example, if

an uptrend precedes a symmetrical triangle, traders would expect the price to

break to the upside.

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 TRIPLE TOPS & BOTTOMS

Price patterns are seen in identifiable sequences of price bars shown in

technical analysis charts. These patterns can be used by to examine past
price movements and predict future ones for a particular trading
instrument. Readers should already be familiar with trendlines,
continuation price patterns and reversal price patterns.

In this article, we will explore how to interpret the patterns once they have been
identified and examine the rare but powerful triple top and triple bottom patterns.

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KEY TAKEAWAYS

• A triple top is formed by three peaks moving into the same area, with
pullbacks in between, while a triple bottom consists of three troughs
with rallies in the middle.
• While not often observed in everyday market trading, triple tops and
bottoms provide compelling signal to technical traders for trend
reversals.
• In addition to chart shapes portraying the letters "M" or "W", trading
volume trends should also be employed to confirm the strength of the
signal.

Duration

The duration of the price pattern is an important consideration when interpreting

a pattern and forecasting future price movement. Price patterns can appear on
any charting period, from a fast 144-tick chart, to 60-minute, daily, weekly or
annual charts. The significance of a pattern, however, is often directly related to
its size and depth.

Patterns that emerge over a longer period of time generally are more reliable,
with larger moves resulting once price breaks out of the pattern. Therefore, a
pattern that develops on a daily chart is expected to result in a larger move than
the same pattern observed on an intraday chart, such as a one-minute chart.
Likewise, a pattern that forms on a monthly chart is likely to lead to a more
substantial price move than the same pattern on a daily chart.

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