Financial Sustainability Practices and Performance of Non-Governmental Organizations in Nairobi, Kenya
Abstract
Abstract The sustainability of non-governmental organizations (NGOs) is critical in addressing societal challenges, yet many face financial constraints that hinder their performance. This study investigated the effects of financial sustainability practices, namely funding diversification, financial accountability, and donor relationship management, on the performance of NGOs in Nairobi, Kenya, with governance structure included as a control variable. The study was anchored on Resource Dependency Theory and supported by Stakeholder Theory and Agency Theory. A descriptive cross-sectional research design was utilized, targeting 1,388 NGOs operating in various sectors. Using stratified random sampling, a sample of 311 NGOs was selected, and data was obtained from 236 respondents via structured questionnaires administered to heads of finance or their equivalent, representing a response rate of 75.9%. Data were analyzed using descriptive statistics, correlation analysis and multiple regression, with diagnostic tests conducted to ensure model validity. The regression model was statistically significant (R = 0.890, R² = 0.793, adjusted R² = 0.789; F = 221.160, p < 0.001), showing that financial sustainability practices and governance structure jointly explained 79.3% of the variance in organizational performance. Financial accountability had the strongest positive effect (β = 0.440, p < 0.001), followed by funding diversification (β = 0.235, p < 0.001), donor relationship management (β = 0.187, p < 0.001), and governance structure (β = 0.166, p < 0.001). The study concludes that robust financial sustainability practices and governance structures are indispensable for the effective performance of NGOs, with financial accountability emerging as the most critical factor. It recommends that NGOs diversify their funding sources through income-generating activities and corporate sponsorships, institutionalize regular audits and transparent financial reporting, strengthen donor engagement and recognition programs, and invest in sound governance mechanisms, while policymakers develop frameworks that support NGO sustainability. Keywords: financial sustainability practices; funding diversification; financial accountability; donor relationship management; governance structure; organizational performance; NGOs.
Keywords
Keywords: financial sustainability practices; funding diversification; financial accountability; donor relationship management; governance structure; organizational performance; NGOs.
References
References Achola, E., Ombok, B., & Kiganda, E. (2023). Influence of financial sustainability on financial growth of non-governmental organizations in lreb-Kenya. European Journal of Economic and Financial Research, 7(3);23-29. Alshubiri, F. N. (2021). Analysis of financial sustainability indicators of higher education institutions on foreign direct investment: Empirical evidence in OECD countries. International Journal of Sustainability in Higher Education, 22(1), 77-99. Aluchna, M. (2023). Agency Theory. In Encyclopedia of Sustainable Management (pp. 87-95). Cham: Springer International Publishing. Bakri, M. A., Ayub, N., & Gazali, H. M. (2024). Integrating agency and resource dependency theories: the moderating effect of board size on the relationship between dividends and firm value in Malaysia. Future Business Journal, 10(1), 37-43. Bridoux, F., & Stoelhorst, J. W. (2022). Stakeholder theory, strategy, and organization: Past, present, and future. Strategic Organization, 20(4), 797-809. Cazenave, B., & Morales, J. (2021). NGO responses to financial evaluation: auditability, purification and performance. Accounting, Auditing & Accountability Journal, 34(4), 731-756. Chepkemoi, Y. E., & Kisimbii, J. M. (2021). Determinants of the sustainability of donor-funded poverty reduction programs in non-governmental organizations in Mombasa County, Kenya. International Academic Journal of Information Sciences and Project Management, 3(7), 18-42. Cheuk, S. (2021). Financial management capacity, accountability, own income generation, revenue diversification and financial sustainability in charities of Malaysia. Studies of Applied Economics, 39(1);67-73. Chopra, M., & Gupta, V. (2020). Linking knowledge management practices to organizational performance using the balanced scorecard approach. Kybernetes, 49(1), 88-115. Creswell, J. W., & Creswell, J. D. (2018). Research design: Qualitative, quantitative, and mixed methods approaches. Sage publications. Davis, P. E., Bendickson, J. S., Muldoon, J., & McDowell, W. C. (2021). Agency theory utility and social entrepreneurship: issues of identity and role conflict. Review of Managerial Science, 15(2), 2299-2318. Dmytriyev, S. D., Freeman, R. E., & Hörisch, J. (2021). The relationship between stakeholder theory and corporate social responsibility: Differences, similarities, and implications for social issues in management. Journal of Management Studies, 58(6), 1441-1470. Freeman, R. E. (1984). Stakeholder theory: A libertarian defense. Business ethics quarterly, 12(3), 331-349. Freeman, R. E., Dmytriyev, S. D., & Phillips, R. A. (2021). Stakeholder theory and the resource-based view of the firm. Journal of management, 47(7), 1757-1770. Gao, D., Wong, C. W., & Lai, K. H. (2023). Development of ecosystem for corporate green innovation: Resource dependency theory perspective. Sustainability, 15(6), 5450. Gathingu, T., Wasike, S., & Mote, P. (2022). Competitive Strategies and Performance of Selected Non-Governmental Organizations in Nairobi County, Kenya. International Journal of Innovative Research & Development, 11(5), 13-33. Gatua, P. (2021). The Relationship Between Financial Management Practices and Sustainability of Non-governmental Organizations in Nairobi County (Doctoral dissertation, University of Nairobi). Ghafran, C., & Yasmin, S. (2024). Reconceptualizing accountability in NGO-corporate partnerships: an institutional logics perspective. Accounting, Auditing & Accountability Journal, 2(1);34-42. Gleißner, W., Günther, T., & Walkshäusl, C. (2022). Financial sustainability: measurement and empirical evidence. Journal of Business Economics, 92(3), 467-516. Hadi, H. A., & Zainon, S. (2024). Does transformational leadership affects NPOs performance?. The Malaysian Journal of Social Administration, 18(6);34-43. Indangasi, I. B. (2023). Effect of Diversification of Revenue Streams on the Financial Sustainability of Non-Governmental Organizations in Kenya (Doctoral dissertation, The Co-operative University of Kenya.). Kabene, N. W. (2021). The impact of financial accountability on the financial sustainability of Non-governmental Organizations in Nairobi County (Doctoral dissertation, University of Nairobi). Kinyangi, H. N., Musiega, M., & Nelima, M. (2023). Influence of Governance Structure on the Financial Performance of Microfinance Banks in Kenya. African Journal of Empirical Research, 4(2), 671-678. Kumi, E., & Copestake, J. (2022). Friend or patron? Social relations across the national NGO–Donor Divide in Ghana. The European Journal of Development Research, 34(1), 343-366. Lee, D., & Ng, P. M. (2021). The role of organizational culture, capabilities, and adoption of e-marketing on nonprofits’ organizational performance. Journal of Philanthropy and Marketing, 26(2), 76-88. Mahajan, R., Lim, W. M., Sareen, M., Kumar, S., & Panwar, R. (2023). Stakeholder theory. Journal of Business Research, 16(6), 94-104. Mailu, R. M., & Kariuki, P. (2022). Influence of strategic leadership on performance in non-governmental organizations in Nairobi County. International Academic Journal of Human Resource and Business Administration, 4(1), 386-407. Makeche, E. M., Chowa, T., Campus, G. E. R., & Lusaka, Z. (2023). A Study of the Factors that Determine Local NGO Financial Sustainability, A Case of CIDRZ. International journal of innovation science and research technology, 8(4);112-127. Makwatikizo, N. (2023). An analysis of the financial sustainability challenges faced by non-profit organisations in the health sector in Namibia (Doctoral dissertation, University of Namibia). McDonough, A., & Rodríguez, D. C. (2020). How donors support civil society as government accountability advocates: a review of strategies and implications for transition of donor funding in global health. Globalization and health, 1(6), 1-18. Medine, A., & Minto-Coy, I. (2023). Sustainability Challenges of Caribbean NPOs. In Social Entrepreneurship Strategies and Social Sector Sustainability: A Caribbean Context (pp. 103-126). Cham: Springer International Publishing. Miriti, N. S., & Karithi, N. M. (2020). Factors influencing sustainability of non-governmental organizations: A study for Nairobi, Kenya. FOCUS: Journal of International Business, 7(1), 145-163. Mpofu, L., & Govender, K. (2022). Donor-NGO partnerships in South Africa: A qualitative case study of five NGOs in Gauteng. African Evaluation Journal, 10(1), 1-10. Munene, R., & Nyaga, J. (2021). Leadership practices and performance of non-governmental organizations in Nairobi County, Kenya. International Research Journal of Business and Strategic Management, 3(3);12-23. Muraguri, W. M. (2023). Corporate governance practices and financial sustainability of non-governmental organizations in northern Kenya (Doctoral dissertation, The Co-operative University of Kenya.). Musa, S. J., & Ibrahim, K. M. (2022). Agency theory and corporate governance: A comparative study of Board diversity and financial performance in Nigeria. Journal of Positive School Psychology, 3(2);10364-10372. Musyoka, A. (2023). Effect of Financial Accountability on Financial Sustainability of Microfinance Institutions in Kenya (Doctoral dissertation, KCA University). Muzammil, M. (2022). Evaluating the factors to improve the organizational performance: Organizational performance. South Asian Management Review, 1(1), 39-48. Ndibaru, J. G., & Ongwae, G. J. (2023). Financial accountability practices and financial sustainability of donor funded projects in Kiambu County, Kenya. International Academic Journal of Economics and Finance, 3(10), 26-82. Ntongho, R. A., & Lee, J. (2024). Resource Dependency Theory and Cybersecurity Regulation. Available at SSRN 4783952. Okatta, C. G., Ajayi, F. A., & Olawale, O. (2024). Enhancing organizational performance through diversity and inclusion initiatives: a meta-analysis. International Journal of Applied Research in Social Sciences, 6(4), 734-758. Oluoch, F. O., K’Aol, G., & Kosha, J. (2021). Moderating influence of regulatory framework on the relationship between strategic leadership and financial sustainability of NGOs in Kenya. The University Journal, 3(2), 13-26. Ombima, B. O. (2022). Influence of strategic control systems on financial sustainability of national non-profit organizations in Juba, South Sudan (Doctoral dissertation, Africa Nazarene University). Omondi, J. O. (2021). Effect of Corporate Governance on Financial Reporting Quality in Non-governmental Organizations: a Case Study of Nairobi County, Kenya (Doctoral dissertation, University of Nairobi). Ozturk, O. (2021). Bibliometric review of resource dependence theory literature: an overview. Management Review Quarterly, 71(3), 525-552. Pfeffer, J., & Salancik, G. R. (1978). The external control. New York. Raimo, N., Vitolla, F., Marrone, A., & Rubino, M. (2021). Do audit committee attributes influence integrated reporting quality? An agency theory viewpoint. Business Strategy and the Environment, 30(1), 522-534. Searing, E. A. (2023). Beyond donations: Isomorphism and revenue mix in nonprofit start-ups. Administrative Sciences, 13(3), 89-94. Shah, M. U., & Guild, P. D. (2022). Stakeholder engagement strategy of technology firms: A review and applied view of stakeholder theory. Technovation, 11(4), 439-460. Soelton, M., Noermijati, N., Rohman, F., & Mugiono, M. (2021). Improving the performance NON-profit organizations?. Academy of Strategic Management Journal, 20(3), 1-13. Solomon, S. J., Bendickson, J. S., Marvel, M. R., McDowell, W. C., & Mahto, R. (2021). Agency theory and entrepreneurship: A cross-country analysis. Journal of Business Research, 12(2), 466-476. Starshinova, A. V., & Borodkina, O. I. (2022). Sustainability strategies of socially oriented NPOs: Grant support mechanism. Economic and Social Changes: Facts, Trends, Forecast, 15(5), 221-236. Tall, B., Matarneh, S., Sweis, G., Sweis, R., & AlBalkhy, W. (2023). Factors affecting the success of development projects of the non-governmental organizations (NGOs) in Jordan. International Journal of Construction Management, 23(10), 1756-1767. Tang, G., & Wang, F. (2022). What contributes to the sustainability of self-organized non-profit collaboration in disaster relief? A fuzzy-set qualitative comparative analysis. Public Management Review, 24(3), 466-488. Tay, M. X. Y., & Tay, S. E. R. (2023). Understanding Sustainability Practices Through Sustainability Reports and Its Impact on Organizational Financial Performance. In Proceedings of the 17th East Asian-Pacific Conference on Structural Engineering and Construction, 2022: EASEC-17, Singapore (pp. 343-352). Singapore: Springer Nature Singapore. Wabwire, D. M. (2022). Corporate Governance and Financial Sustainability of Non-governmental Organizations in Kisumu County, Kenya (Doctoral dissertation, University of Nairobi). Wanga, V. C. (2022). Budgetary Control and Financial Sustainability of Local Non-Governmental Organizations in Kenya (Doctoral dissertation, University of Nairobi). Ye, S., & Gong, X. (2021). Funding the present and the future: Drivers of NPO’s financial sustainability. Nonprofit Management and Leadership, 32(2), 197-218. Zaharrudin, N. Z., & Zakaria, A. (2022). Exploring donor relationship management for funding among Malaysian Social Welfare NGOs. Environment-Behaviour Proceedings Journal, 7(19), 271-277.