THE EFFECT OF DIVIDEND POLICY ON THE GROWTH OF MICROFINANCE INSTITUTION


THE EFFECT OF DIVIDEND POLICY ON THE GROWTH OF MICROFINANCE INSTITUTION    

CHAPTER 1: Introduction 

Micro-finance refers to financial services such as cash loans, deposit savings accounts, and insurance made available in relatively small amounts to poorer populations throughout the developing world. Microfinance basically relates to all financial intermediation services such as savings, credit, funds transfers, insurance, pension and remittances among others by financial institution in both rural and urban areas to low income earners (Robinson, 2001). Microfinance promises both to combat poverty and to develop the institutional capacity of financial systems, through finding ways to cost-effectively lend money to poor households (Morduch, 2000). Three features distinguished microfinance from other formal financial products: the smallness of loans offered or savings collected the absence of asset-based collateral and the simplicity of operations (Seyed, 2011) . Loan repayment which measured portfolio quality was an essential ingredient for sustainability of MFIs. Loan repayment indicators included Portfolio at risk (PAR), credit risk measured by the sum of the level of loans past due 30 days or more (PAR>30) is negatively and significantly related to MFI sustainability (Cooper, A. Jackson, M. J . Patterson, G. A., 2003). Increased exposure to credit risk resulted to lower MFI sustainability, given that credit granting was the principal source of revenue for these institutions. There was a positive influence of 

the collection of deposits from clients in form of savings and also shares. Microfinance is primarily a cash-based operation and involves member’s savings. However, to make the sorts of investment that stimulate endogenous economic growth, one needs access to financial capital that comes either from savings or from borrowing, which is difficult in environments where the formal means of either saving or borrowing are typically absent. Traditional communities had informal mechanisms for savings. For example, voluntary rotating savings and credit associations of various sorts are proliferating across Southeast Asia and Africa allowed individuals to receive periodic payouts from group contributions (Anthony, 2005).

1.1 Background of the Study

Dividend policy is the regulations and guidelines that a company uses to decide to make dividend payments to shareholders (Nissim & Ziv, 2001). Dividend, which is basically the benefit of shareholders in return for their risk and investment, is determined by different factors in an organization. Firms ought to distribute their earnings to shareholders if they cannot identify suitable investments which would bring higher returns than those expected by the shareholders Mizuno (2007) .Dividend policy also affected MFI performance in that it encouraged members to increase their deposits because in the end of the year the profits arising from the performance was shared in form of dividend. The more the savings the more dividends received. Dividend policy is the decision to pay out earnings versus retaining and reinvesting them. Dividend policy was considered to be one of the most important financial decisions that corporate managers encounter (Baker & Powell, 1999). It had potential implications for share prices and hence returns to investors, the financing of internal growth and the equity base through retentions together with its gearing and leverage (Omran & Pointon, 2004). The research seeks to investigate the effect of dividend policy on the growth of microfinance institutions.

1.2 Statement of the Problem

Dividend policy is the regulations and guidelines that a company uses to decide to make dividend payments to shareholders (Nissim & Ziv, 2001). Dividend, which is basically the benefit of shareholders in return for their risk and investment, is determined by different factors in an organization. Firms ought to distribute their earnings to shareholders if they cannot identify suitable investments which would bring higher returns than those expected by the shareholders Mizuno (2007). The amount of dividendsis distributed to shareholders or members in cash. These distributions should be made from Retained Earnings.The main goal of every Microfinance Institution (MFI) is to operate profitably in order to maintain its stability and improve growth and sustainability. But this often affected by the real factor condition under which the firm operates,when there is uncertainty of earnings, unsuccessful business operations, lack of liquid resources, and fear of adverse effects of regular dividend on the financial standing of the company a policy of irregular dividends is adopted where earnings are unstable and management considers that shareholders are entitled to dividend only when the earning and liquidity positions of the banks warrant it. The larger the earning higher the dividend and vice versa .According Moh’d, Perry, and Rimbey (1995) firms with unstable earnings pay fewer dividends. They use the irregular dividend policy. It is possible that the lower ratio is an attempt to keep dividend payouts stable and/or a way to avoid outside financing. Earnings volatility will have a negative relationship with dividend yield and hence affecting the performance of MFIs. The problem confronting this research therefore if to investigate the effect of dividend policy on the growth of micro-finance institutions

1.3 Objective of the Study

1 To determine the nature of micro-finance institution

2 To determine the nature of dividend policy of micro finance institutions.

3 To determine the effect of dividend policy on the growth of micro finance institution

1.4 Research Questions

1 What is the nature of microfinance institution?

2 What is the nature of dividend policy of micro finance institution?

3 What is the effect of dividend policy on the growth of microfinance institution?

1.5 Significance of the Study

The study proffers a framework for the formulation and implementation of appropriate policies towards mitigating the effect of dividend policy on the growth of microfinance institution

1.6 Statement of Hypothesis

1 Ho   The level of growth of micro finance institutions is low

    Hi    The level of growth of microfinance institution is high

      2   Ho Dividend payout is low

           Hi Dividend payout is high

  3    Ho   The effect of Dividend policy on the growth of micro-finance institution is negative

      Hi    The effect of Dividend policy on the growth of micro-finance institution is positive

1.7 Scope  of the Study

The study focuses on the appraisal of the effect of dividend policy on the growth of microfinance institutions in Nigeria, though it was narrowed toIzzi Microfinance Bank Limited in Ebonyi State as a case study.

1.8 Definition of Terms

Microfinance The provision of financial services primarily savings and credit to the poor and low income households that don’t have access to commercial banks. (Arsyad, 2005). 

Microfinance Community 

Based organization is an organization which assumes greater significance, provides the possibility for the emergence of a viable option since it is non-exploitative, member-based and member-managed and, more importantly, the members benefit directly from the savings and the profits. (Srinivasan, 2010) 

Performance Prism The performance measurement based on five distinct but linked perspectives of performance: Stakeholder satisfaction, Strategies, Processes, Capabilities and Stakeholders contribution (Kennerley & Neely, 2000) 

Entrepreneurship A form of social relationships that contributes to economic and spiritual potential of any society, creates favorable conditions to practical xii 

Realization of individual capabilities and talents, and favors nation unity. (Pavlenko, 2001) 

Portfolio at risk; The value of all loans outstanding that have one or more installments of principal past due more than a certain number of days. This item includes the entire unpaid principal balance, including both past-due and future installments, but not accrued interest. It also does not include loans that have been restructured or rescheduled (CGAP, 2005) 

Dividend The portion of a company’s net earnings which the directors recommend to be distributed to shareholders in proportion to their shareholdings in the company (Pandey , 2001).

.

THE EFFECT OF DIVIDEND POLICY ON THE GROWTH OF MICROFINANCE INSTITUTION



TYPE IN YOUR TOPIC AND CLICK SEARCH.






RESEARCHWAP.ORG

Researchwap.org is an online repository for free project topics and research materials, articles and custom writing of research works. We’re an online resource centre that provides a vast database for students to access numerous research project topics and materials. Researchwap.org guides and assist Postgraduate, Undergraduate and Final Year Students with well researched and quality project topics, topic ideas, research guides and project materials. We’re reliable and trustworthy, and we really understand what is called “time factor”, that is why we’ve simplified the process so that students can get their research projects ready on time. Our platform provides more educational services, such as hiring a writer, research analysis, and software for computer science research and we also seriously adhere to a timely delivery.

TESTIMONIES FROM OUR CLIENTS


Please feel free to carefully review some written and captured responses from our satisfied clients.

  • "Exceptionally outstanding. Highly recommend for all who wish to have effective and excellent project defence. Easily Accessable, Affordable, Effective and effective."

    Debby Henry George, Massachusetts Institute of Technology (MIT), Cambridge, USA.
  • "I saw this website on facebook page and I did not even bother since I was in a hurry to complete my project. But I am totally amazed that when I visited the website and saw the topic I was looking for and I decided to give a try and now I have received it within an hour after ordering the material. Am grateful guys!"

    Hilary Yusuf, United States International University Africa, Nairobi, Kenya.
  • "Researchwap.org is a website I recommend to all student and researchers within and outside the country. The web owners are doing great job and I appreciate them for that. Once again, thank you very much "researchwap.org" and God bless you and your business! ."

    Debby Henry George, Massachusetts Institute of Technology (MIT), Cambridge, USA.
  • "Great User Experience, Nice flows and Superb functionalities.The app is indeed a great tech innovation for greasing the wheels of final year, research and other pedagogical related project works. A trial would definitely convince you."

    Lamilare Valentine, Kwame Nkrumah University, Kumasi, Ghana.
  • "I love what you guys are doing, your material guided me well through my research. Thank you for helping me achieve academic success."

    Sampson, University of Nigeria, Nsukka.
  • "researchwap.com is God-sent! I got good grades in my seminar and project with the help of your service, thank you soooooo much."

    Cynthia, Akwa Ibom State University .
  • "Sorry, it was in my spam folder all along, I should have looked it up properly first. Please keep up the good work, your team is quite commited. Am grateful...I will certainly refer my friends too."

    Elizabeth, Obafemi Awolowo University
  • "Am happy the defense went well, thanks to your articles. I may not be able to express how grateful I am for all your assistance, but on my honour, I owe you guys a good number of referrals. Thank you once again."

    Ali Olanrewaju, Lagos State University.
  • "My Dear Researchwap, initially I never believed one can actually do honest business transactions with Nigerians online until i stumbled into your website. You have broken a new legacy of record as far as am concerned. Keep up the good work!"

    Willie Ekereobong, University of Port Harcourt.
  • "WOW, SO IT'S TRUE??!! I can't believe I got this quality work for just 3k...I thought it was scam ooo. I wouldn't mind if it goes for over 5k, its worth it. Thank you!"

    Theressa, Igbinedion University.
  • "I did not see my project topic on your website so I decided to call your customer care number, the attention I got was epic! I got help from the beginning to the end of my project in just 3 days, they even taught me how to defend my project and I got a 'B' at the end. Thank you so much researchwap.com, infact, I owe my graduating well today to you guys...."

    Joseph, Abia state Polytechnic.
  • "My friend told me about ResearchWap website, I doubted her until I saw her receive her full project in less than 15 miniutes, I tried mine too and got it same, right now, am telling everyone in my school about researchwap.com, no one has to suffer any more writing their project. Thank you for making life easy for me and my fellow students... Keep up the good work"

    Christiana, Landmark University .
  • "I wish I knew you guys when I wrote my first degree project, it took so much time and effort then. Now, with just a click of a button, I got my complete project in less than 15 minutes. You guys are too amazing!."

    Musa, Federal University of Technology Minna
  • "I was scared at first when I saw your website but I decided to risk my last 3k and surprisingly I got my complete project in my email box instantly. This is so nice!!!."

    Ali Obafemi, Ibrahim Badamasi Babangida University, Niger State.
  • To contribute to our success story, send us a feedback or please kindly call 2348037664978.
    Then your comment and contact will be published here also with your consent.

    Thank you for choosing researchwap.com.