THE EFFECT OF DIVIDEND POLICY ON THE GROWTH OF MICRO FINANCE INSTITUTION

THE EFFECT OF DIVIDEND POLICY ON THE GROWTH OF MICRO FINANCE INSTITUTION

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Format: MS WORD  |  Chapters: 1-5  |  Pages: 66
CHAPTER ONE
INTRODUCTION
1.1       Background of the Study
Financial services provided by the investment companies such as deposit saving accounts, cash loans and insurance is referred to as micro-finance which is available in a small amount to the minority populations. In developing countries, the need of the financial services becomes essential in order to invest in a various project to earn the sustainable amount of profit. With the fluent investment, there is the threat of decreasing a company’s performance. Microfinance activities consider as the financial services of individuals in perspective of credit, savings, funds transfer, pension, insurance and remittance in urban and rural areas both for the low-income people (Gamayuni, 2015).  
Microfinance seeks to develop a financial system of institutional capacity and combat poverty. The perspective of a microfinance institute is to provide a cost-efficient plan to the poor people. The process for the microfinance institute for the provision of the loan facility to the poor people is to examine their current position in terms of financial background and ability to return the amount of loan. Most of these companies seek their client’s income for the return policy of loan. Loan repayment is considered as the significant aspect to measure the quality portfolio for the long-term sustainability of MFI’s. For the perspective of loan repayment, the indicators include credit risk and portfolio at risk (Kyereboah-Coleman, 2007). These factors significantly impacted in a negative way on MFI sustainability. It has been noticed that there is a positive outcome achieved from a deposit collection of clients in the form of shares and saving. 
The major factors included in the microfinance operations are involvement of member’s savings and cash-based operations. Conversely, the need for access to the financial capital from the saving practices or borrowing can simulate the sorts of investment under the critical situation of a formal environment. In this research study, the major emphasized on the dividend policy impact on the microfinance institutional growth (Amidu & Abor, 2006). The evaluation of key factors can help to analyze the significance of the dividend policy in managing the activities of microfinance for effective growth. The recommendation highlighted the improvement in the return on investment policies and dividend policies.
The dismal performance of the conventional finance sectors triggered the advocation of micro – financing by policy makers, practitioners, and international organizations as a tool for poverty reduction. Since its emergence, the number of microfinance institutions around the world has proliferated at a fast pace after the 1970s. Today there are more than 7000 micro – lending organizations providing loans to more than 25 million poor individuals around the globe (Mohammed and Hasan, 2008). The Nigerian microfinance industry has come a long way. It boasts of the entire four well - known models in the industry. A CBN study identified, as of 2001, 160 registered Microfinance Institutions (MFIs) in Nigeria with aggregate savings worth N99.4 million and outstanding credit of N649.6 million, indicating huge business transactions in the sector (Anyanwu, 2004). With a population of about 150 million and GDP per capita of $641 (2006), two – thirds of Nigeria’s people are poor. Nigeria has the third highest number of poor people in the world. Most of these people are dependent on micro and small – scale farm and off – farm enterprises for their livelihood (UNDP, 2007). One of the challenges microfinance currently faces in Nigeria is for the MFIs to reach a greater number of the poor. The CBN survey indicated that their client base was about 600, 000 in 2001, and there were indications that they may not be above 1.5 million in 2 2003. The existing microfinance in Nigeria serves less than 1 million people out of 40 million potential people that need the service (CBN, 2005). Also, the aggregate micro credit facilities in Nigeria account for about 0.2 percent of GDP and less than one percent of total credit to the economy. Another challenge is that most of microfinance funding goes to the commercial sector to the detriment of the more vital economic activities, especially agricultural and manufacturing sectors which provide the foundation for sustainable growth and development. Currently, only about 14.1 and 3.5 per cent of total MFI funding went to these sectors, respectively, while the bulk, 78.4 percent, funded commerce (Anyanwu, 2004). About 90% of Nigeria’s businesses are considered microenterprises and these farm or non-farm activities serve as the main income source for the majority of the labor force. Due to the unwillingness or inability of commercial banks to provide financial services to the urban and rural poor, coupled with the unsustainability of government-sponsored development financial institutions and programs, most microentrepreneurs still access financial services from informal sources, including savings and credit associations, traders, or moneylenders. Semi-formal and formal providers of microfinance are a small but rapidly growing part of the financial sector in Nigeria with a handful of large, microcredit NGOs and locally-owned community banks providing the bulk of services.
However, the study tends to examine the effect of dividend policy on the growth of micro finance institution.

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