Chapter one
Introduction
Micro-finance is the term used to describe financial services provided in relatively modest quantities to less fortunate populations in the developing world. These services include cash loans, deposit savings accounts, and insurance. In general, microfinance refers to any financial intermediation services provided to low-income individuals by financial institutions in both rural and urban areas, including savings, credit, funds transfers, insurance, pension, and remittances, among others (Robinson, 2001). By figuring out ways to efficiently lend money to underprivileged households, microfinance aims to both combat poverty and strengthen the institutional capacity of financial institutions (Morduch, 2000).The modest size of loans provided or savings amassed, the lack of asset-based collateral, and the ease of use are the three characteristics that set microfinance apart from other formal financial products (Seyed, 2011). A crucial component for the sustainability of MFIs was loan repayment, which assessed the quality of the portfolio. Indicators of loan repayment such as Portfolio at Risk (PAR), credit risk assessed by the total amount of loans that are past due by 30 days or more (PAR>30), and other indicators are negatively and strongly associated to MFI sustainability (Cooper, A. Jackson, M. J . Patterson, G. A., 2003). Given that credit giving was these organizations’ primary source of income, increased exposure to credit risk had a negative impact on their ability to sustain themselves.Positive influences included the process of collecting deposits from customers in the form of shares and savings. Microfinance generally operates on a cash basis and uses member savings. However, in environments where formal means of either saving or borrowing are typically absent, it is challenging to access the financial capital that comes from either savings or borrowing. In order to make the kinds of investments that stimulate endogenous economic growth, one must have access to financial capital. Traditional societies had unofficial savings arrangements. For instance, the many types of voluntary rotating savings and credit clubs that are becoming more common in Southeast Asia and Africa allow people to receive periodic rewards from group contributions (Anthony, 2005).
Background of the study
The rules and criteria that a firm uses to determine whether to pay dividends to shareholders are known as dividend policy (Nissim & Ziv, 2001). Different elements in a company affect the dividend, which is essentially the reward for shareholders’ risk and investment. If businesses are unable to find acceptable investments that would generate larger returns than what the shareholders anticipate, they should divide their earnings to the shareholders. (2007) Mizuno The dividend policy had an impact on MFI performance as well because it encouraged members to raise their deposits since the year’s end earnings were distributed as dividends. The more money saved, the more dividends will be paid out. A company’s dividend policy determines whether to distribute earnings or keep them and reinvesting them.
One of the most crucial financial choices faced by corporate management is the dividend policy (Baker & Powell, 1999). It might have affected share prices, which would have affected investor returns, the ability to finance internal expansion and the equity base through retentions, as well as its gearing and leverage (Omran & Pointon, 2004). The goal of the study is to determine how dividend policy affects the expansion of microfinance firms.
Statement of the problem
The rules and criteria that a firm uses to determine whether to pay dividends to shareholders are known as dividend policy (Nissim & Ziv, 2001). Different elements in a company affect the dividend, which is essentially the reward for shareholders’ risk and investment. If businesses are unable to find acceptable investments that would generate larger returns than what the shareholders anticipate, they should divide their earnings to the shareholders. Mizuno (2007). (2007). Dividend payments are made in cash to shareholders or members. Retained Earnings should be used to fund these distributions. Every Microfinance Institution’s (MFI) primary objective is to operate profitably in order to preserve stability, enhance growth, and enhance sustainability.
A policy of irregular dividends is adopted when earnings are unstable and management believes that shareholders are only entitled to dividends when the earning and liquidity positions of the banks warrant, but this is frequently affected by the real factor condition under which the company operates. In these situations, there is uncertainty of earnings, unsuccessful business operations, a lack of liquid resources, and fear of the negative effects of regular dividends on the financial standing of the company. The dividend increases with increasing earnings and vice versa. Businesses with erratic revenues, according to Moh’d, Perry, and Rimbey (1995)
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