The Effect of Dividend Policy on Member’s Savings in Savings and Credit Cooperative Societies in Nairobi County

Abstract

For the SACCO to maintain and continue serving members as expected in their objectives, like any other company they are required to raise capital for investment. Members‟ deposits are accumulated and saved as funds for extending credit to the members. The objective was to establish the effect of dividend policy on member‟s savings in Savings and Credit Cooperative Societies in Nairobi County. A descriptive research design was in this study in order to evaluate the effects of dividend payment rate and how it impacts on savings and investment within SACCOs. The target population was SACCOs operating within Nairobi County which according to Nairobi County Annual Report (2011) there are 1102 licensed Saccos. This study therefore focused on thirty (30) SACCOs which have been licensed by the ministry of Industrial and Enterprise Development. The sample design was random sampling. Secondary data was collected using the financial statements of the SACCOs sampled for the last five years. Correlation between the variables also was calculated. This analysis was conducted using the linear regression analysis. Regression model was used to establish the causal relationship between two variables, that is, a dependent (Sacco savings) and independent variables (dividend policy) and growth in membership. The study concluded that SACCO‟s savings have grown and increased due to dividend policy for the period under the study. The study also concluded that dividend policy led to increase in dividend yields of the SACCOs and had also improved while membership growth had also increased over the period under the study which increased Sacco‟s capitalization. The study concludes that there existed strong and negative correlation between dividend yield and SACCOs Savings .This was because increase in dividend yield led to increase in dividend payout in cash which negatively affected SACCOs Saving level. Further study concluded that there existed a significant strong positive correlation between Sacco‟s membership growth and SACCO Savings‟ as increase in membership increased Sacco‟s capitalization. The study further concluded that there was significant positive relationship between membership growth and SACCOs Savings as a unit increase in membership growth would lead to increase in SACCOs Saving. The study concluded that growth of savings and credit co-operative societies in Kenya were greatly affected by increasing dividend payout as a unit increase in dividend yield resulted into significant negative in SACCOs Savings. Based on the findings and conclusions of the study the following recommendations have been suggested in relations to effects of dividend policy and savings in SACCOs. The study recommend that SACCOS management should develop dividend policy that lower consumption of divided and increase savings rates in as this would lead to SACCO‟s savings increasing. The study found that earnings dividend policy creates certainty in the shareholders expectations but lower savings of SACCOs. The study found that a positive relationship between Sacco‟s membership growth and SACCO Savings‟ exists thereby indicating that increase in membership increase SACCOs capitalization hence increase SACCO growth. The study recommends that Sacco‟s management should lower dividend yield rate and increase income investment to increase growth of SACCOs. Growth of savings and credit cooperative societies in Kenya were greatly affected by increasing dividend payout as a unit increase in dividend yield resulted into significant negative in SACCOs Savings.