PRIYANKA LALLUBHAI DIVECHA MBA 2014.pdf

EFFECTS OF FINANCIAL STRATEGIES ON FINANCIAL

SUSTAINABILITY OF NON-GOVERNMENTAL ORGANIZATIONS IN

KENYA

BY

PRIYANKA LALLUBHAI DIVECHA

UNITED STATES INTERNATIONAL UNIVERSITY

FALL 2014

EFFECTS OF FINANCIAL STRATEGIES ON FINANCIAL

SUSTAINABILITY OF NON-GOVERNMENTAL ORGANIZATIONS IN

KENYA

BY

PRIYANKA LALLUBHAI DIVECHA

A Project Report Submitted to the Chandaria School of Business in Partial

Fulfillment of the Requirement for the Degree of Masters in Business

Administration

UNITED STATES INTERNATIONAL UNIVERSITY,

NAIROBI-KENYA

FALL 2014

i

STUDENT’S DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to

any other college, institution or university other than the United States International

University in Nairobi-Kenya for academic credit.

Signed: ________________________ Date: _____________________

Priyanka L. Divecha (ID: 638817)

This project has been presented for examination with my approval as the appointed

supervisor.

Signed: ________________________ Date: _____________________

Dr. George Achoki

Signed: ________________________ Date: _____________________

Dean, Chandaria School of Business

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DEDICATION

To my beloved dad (Late Mr. Lallubhai Divecha), whose dream was to see all his kids

grow greater and wiser, to his never ending faith and belief in his children; To my mother,

Mrs. Renuka Lallubhai and her sleepless nights of struggle towards her kids; To my

greatest wings, my brothers, Mr. Jiten Divecha and Mr. Ritesh Divecha for their hands

that always held mine and showing me the correct path, and their wives, Mrs. Sheetal

Jiten and Mrs. Suman Ritesh, for their continuous belief and push.

Special extended dedication goes to my Fiancé, Mr. Harsheet Chudasama, for his never

ending support and encouragement, and his continuous patience and love.

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ACKNOWLEDGEMENT

I am obligated to thank all of those who have helped me in the completion of my project.

My very first appreciation goes to my supervisor, Mr. George Achoki for his continuous

guidance, patience and support. It is his dedicated interest and sincerity in the accounting

and finance field that have given me the moral of pushing myself further ahead and

building my career.

My appreciation is also extended to my friends, colleagues and other professors of the

United States International University all of those who have been a part of my journey all

through.

Special appreciation is expressed to my Mum and Dad, Mrs. Renuka Lallubhai and Late

Mr. Lallubhai Divecha for their unbelievable support and struggle towards me, and to the

dream they held towards me.

My indebted appreciation goes to my brothers Mr. Jiten Divecha and Ritesh Divecha, I

would have never been able to stand where I stand today if it wasn’t for their guidance

and support. My appreciation to my sister in laws, Mrs. Sheetal Jiten and Mrs. Suman

Ritesh, their patience towards me and their sisterly support that kept me strong all

through.

My very special appreciation is expressed to my fiancé, Mr. Harsheet Chudasama, and his

continuous patience, love and care that held on to me all through. His strong support

helped me in completing my fieldwork on time, and his prayers and faith that secured my

belief in being able to complete this

Most of all, I give glory to the Almighty for keeping me strong all through.

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ABSTRACT

The purpose of this study was to investigate the effects of financial strategies on the

financial sustainability of Nongovernmental Organizations (NGOs) in Kenya. The study

sought to answer the following research questions, “How does income diversification

strategy affect the financial sustainability of NGOs?”, “How does a strategic partnership

affect the financial sustainability of NGOs?”, “How does strategic financial management

affect the financial sustainability of NGOs?” and “How does participation of NGOs in

income generating activities affect the financial sustainability of NGOs?”. Through this

study, an attempt was made to know whether the identified financial strategies help in

enhancing the financial status of NGOs in Kenya and how these financial strategies affect

the overall financial sustainability of NGOs in Kenya.

The study was an inferential study that was aimed to present the degree of variance in the

financial sustainability of NGOs caused or predicted by the four different financial

strategies adopted. Seventy five NGOs were sampled from Twenty Six different sectors

of NGOs operating in Nairobi, Kenya. Quantitative data was analyzed using the SPSS

version 22.0. The sample was selected using stratified proportionate random sampling

technique and reduced to twenty six strata of NGOs for quality and accuracy purposes.

The findings of the study are that all the four independent variables are positively

correlated to the financial sustainability of NGOs; Income diversification strategies that

enhance the financial sustainability of NGO’s identified from the study findings were

tapping international funding streams, fundraising and development plan and corporate

donor sourcing. The NGOs were studied to be developing their fund-raising activities and

tapping into new corporate donor streams for better monetary support as well as holding

one-time events in aspect of improving their income streams. Funding based strategic

partnerships between NGOs and other business entities was also found becoming a

central part of their financial development process. Strategic financial management was to

be affecting the financial sustainability of NGOs to a great extent. The drivers for

strategic financial management that mainly affected the financial sustainability of the

NGO to a great extent included strategic planning, financial analysis and plan

implementation. Participation of NGOs in their own income generating activities was also

found to be affecting the NGO’s financial sustainability to a great extent. The study found

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that participating in business activities, receiving trust or endowment funds and receiving

public contribution were to be affecting financial sustainability of NGOs to a great extent.

The study concluded that poor financial management in specific categories such as

strategic planning, plan implementation and financial analysis led to poor management of

financial stability of NGOs. Income generation was also concluded to be a central

strategy used to respond to financial challenges and find alternatives to stabilize financial

status of NGO. The study further concluded that funding based partnerships benefited the

NGOs to a great extent in comparison to other strategic partnerships. Furthermore, the

study deduced that NGOs majorly depended on public contribution for stabilizing their

financial status and therefore NGOs participating in their own income generating

activities contributed majorly to most of the financial sustainability of the organization.

The study further recommends NGO’s in order to remain financially sustainable; they

should employ staffs that are capable of planning strategically, implementing the plan and

doing appropriate financial analysis to manage and maintain good financial status in

terms of cost recovery, cash flows and capital structure. The study also recommends all

the NGOs management to improve and maintain their income sources from their usual

source that is donors. Employees capable of identifying risk factors and those who are

able to manage risk should be employed so as to be able to manage their cash flow

appropriately. The study also suggests NGOs to reduce their dependency on major

donors, withdrawal of which would force the organization to close down.

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LIST OF ABBREVIATIONS

FS - Financial Sustainability

ID - Income Diversification

IG - Income Generation

IGPs - Income Generating Programs

SP - Strategic Partnerships

SFM - Strategic Financial Management

RBV - Resource-Based View

NGO - Non-governmental Organizations

SPSS - Statistical Package for Social Science

USAID - United States Agency for International Development

DFID - Department for International Development

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TABLE OF CONTENTS

STUDENT’S DECLARATION ................................................................................................................. i

DEDICATION ................................................................................................................................. ii

ACKNOWLEDGEMENT ............................................................................................................... iii

ABSTRACT .................................................................................................................................... iv

LIST OF ABBREVIATIONS ......................................................................................................... vi

CHAPTER 1 ..................................................................................................................................... 1

1.0 INTRODUCTION ................................................................................................................ 1

1.1 Background of the Study .................................................................................................. 1

1.2 Statement of the Problem ................................................................................................. 4

1.3 Purpose of the Study ......................................................................................................... 7

1.4 Research Questions .......................................................................................................... 7

1.5 Significance of the Study .................................................................................................. 7

1.6 Scope of the Study ............................................................................................................ 8

1.7 Definition of Terms .......................................................................................................... 8

1.8 Chapter Summary ........................................................................................................... 10

CHAPTER 2 ................................................................................................................................... 11

2.0 LITERATURE REVIEW ................................................................................................... 11

2.1 Introduction .................................................................................................................... 11

2.2 Income Diversification ................................................................................................... 11

2.3 Strategic Partnerships ..................................................................................................... 15

2.4 Strategic Financial Management .................................................................................... 19

2.5 Participation of NGOs in Income Generating Activities ................................................ 24

2.6 Chapter Summary ........................................................................................................... 26

CHAPTER 3 ................................................................................................................................... 27

3.0 RESEARCH METHODOLOGY ............................................................................................. 27

3.1 Introduction .......................................................................................................................... 27

3.2 Research Design ................................................................................................................... 27

3.3 Population and Sampling Design ................................................................................... 28

3.3.1 Population ............................................................................................................... 28

3.3.2 Sampling Design and Sample Size ......................................................................... 28

3.4 Data Collection Method ................................................................................................. 29

3.5 Research Procedure ........................................................................................................ 29

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3.5.1 Operation of the Variables ...................................................................................... 30

3.6 Data Analysis Methods................................................................................................... 31

3.7 Chapter Summary ........................................................................................................... 32

CHAPTER FOUR .......................................................................................................................... 33

RESULTS AND FINDINGS ......................................................................................................... 33

4.1 INTRODUCTION .................................................................................................................... 33

4.1.1 Response Rate ................................................................................................................... 33

4.2 RELIABILITY TEST ............................................................................................................... 33

4.3 DEMOGRAPHIC INFORMATION ........................................................................................ 34

4.4 STRATEGIC FINANCIAL MANAGEMENT ........................................................................ 37

4.5 INCOME DIVERSIFICATION ............................................................................................... 38

4.6 STRATEGIC PARTNERSHIPS .............................................................................................. 40

4.7 PARTICIPATION IN INCOME GENERATING ACTIVITIES ............................................ 41

4.8 REGRESSION ANALYSIS ..................................................................................................... 42

CHAPTER FIVE ............................................................................................................................ 46

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS .................................................. 46

5.1 INTRODUCTION .................................................................................................................... 46

5.2 SUMMARY ............................................................................................................................. 46

5.2.1 Income Diversification ...................................................................................................... 46

5.2.2 Strategic Partnerships ........................................................................................................ 47

5.2.3 Strategic Financial Management ....................................................................................... 47

5.2.4 Participation in Income Generating Activities .................................................................. 48

5.3 CONCLUSION ........................................................................................................................ 49

5.4 RECOMMENDATION ............................................................................................................ 50

5.5 AREAS OF FURTHER RESEARCH ...................................................................................... 51

REFERENCES ............................................................................................................................... 52

APPENDIX A: SURVEY SAMPLE .............................................................................................. 67

APPENDIX B: COVER LETTER ................................................................................................ 69

APPENDIX C: RESEARCH QUESTIONNAIRE......................................................................... 70

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LIST OF TABLES

Table 1: Response Rate ...................................................................................................... 33

Table 2: Reliability Analysis ............................................................................................. 34

Table 3: Gender of the respondent ..................................................................................... 35

Table 4: Age bracket of respondent ................................................................................... 35

Table 5: Highest level of education of the respondent ...................................................... 36

Table 6: Working experience of the respondent ................................................................ 36

Table 7: Trend of measures of financial sustainability for NGO in the last five years ..... 36

Table 8: Extent to which Strategic Financial Management affected the financial

sustainability of the NGO .................................................................................................. 37

Table 9: Extent to which the different aspects of strategic financial management affect the

financial sustainability of the NGO ................................................................................... 37

Table 10: Importance of Income Diversification drivers to an NGO ................................ 38

Table 11: Effectiveness of various income diversification strategies in enhancing financial

sustainability at an NGO .................................................................................................... 39

Table 12: Organizations in strategic partnerships .............................................................. 40

Table 13: Kind of Strategic partnership ............................................................................. 40

Table 14: Extent to which forming strategic partnerships affect the financial sustainability

of NGO............................................................................................................................... 40

Table 15: Extent to which participation of NGOs in Income Generating Activities affect

the organization’s financial sustainability ......................................................................... 41

Table 16: Extent to which the different income generating activities enhances the

financial sustainability of an NGO .................................................................................... 42

Table 17: Model Summary ................................................................................................ 42

Table 18: ANOVA ............................................................................................................. 43

Table 19: Regression Coefficient....................................................................................... 43

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CHAPTER 1

1.0 INTRODUCTION

1.1 Background of the Study

Effects of financial strategies on financial sustainability of a Nongovernmental

organization are usually seen in terms of its establishing and managing operating costs,

setting financial goals, making financial projections as well as organizing for appropriate

funding needed for projects. In general a financial strategy is one of the crucial aspects of

any business. Financial strategies should be discussed and shared with the company

executives as well as employees, so that everyone is on a common understanding of the

financial state of the organization (Newton, 2012). Surviving under financial constraints

usually requires efficient resource allocation, but most nongovernmental organizations are

usually dominated by circumstances of resource scarcity. Such firms have lack of

opportunities for making additional income, but are more often faced with different

schedules of activities which require monetary funding (Giantris, 2012). These are

scenarios where the need of a financial strategy arises.

An organization is known to be financially stable when its immediate work is not affected

if its external funding is altered (Ahmed, 2012). Financial stability of an organization is

referred to as one of the sustainability factors that leads to the organizations having a

longer life span in the market as well as assisting it to translate its impacts into processes

that are advantageous to the society as stated by its mission statement (Drucker, 2000).

Financial sustainability as noted from a general scenario is one of the key challenges

faced by any Nongovernmental organizations. Only those organizations that have a stable

cash inflow and an established financial constitution are known to survive the financial

challenges faced, in terms of the more gradually, multifaceted global environment.

Nevertheless, financial stability is not only known for its survival but that it also

facilitates and guarantees the organization for its ability to invest in its future (Kiev,

2003).

Financial strategy is defined as a set of plan or policies that concludes on the sourcing of

funds, capitalization and resource attainability. It usually has a major impact on a

Nongovernmental organization’s capability to invest in for its value creation as well as its

sustainability in the sector. However, despite of its ongoing importance, most such

organizations give limited critical review to financial strategies (Mallette, 2013). Whilst

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the main components of the organization’s operations are to be inspected and updated

regularly, Mallette (2012) also states that despite of the impacts of financial strategies on

the NGO’s sustainability, many NGOs do not have an ambient framework for

methodically reviewing their financial strategy to make sure it is associated with its

organizations operations and is internally consistent. Therefore due to such congregating

factors, there has been a rise in demand for the reassessment of financial strategies by the

management of most organizations (Rouse, 2010).

Kortan (1987) reviews Nongovernmental organizational cost management as an

important element of finance strategy, a key to improving efficiency in scheduled

transactional development that permits a shift to the center of building the organization’s

value in terms of its finance functions. This includes construing and counseling on

important business information; managing capital allocation as well as value creation, and

building a balanced view of the NGO’s cash flow and return on assets or equity. The

financial officers for many NGOs therefore face finance transformation in an

environment of globalization, increased cost stress as well as increasing governmental

regulations. Financial strategies employed would therefore offer an integrated plan to

bring into line the financial priorities of the organization with its overall mission (Sesic,

2011).

“The main problem is that organizations don't always know when the money is coming in

-- so it's hard to plan and shortfalls are common” stated by Giantris (2012). Organizations

need to understand the wise usage of their funds, according to their intended purpose.

More often when audits are taken place, it is witnessed that organization’s managers use

the company’s funds outside the extent of the organizations work plan. Effective

management practices in terms of strategic financial management require organizational

principles of sustainability, accountability and transparency for administrative efficiency

(Nicklous, 2012).

Nevertheless, strategic partnerships between NGOs and other businesses hold the

potential to tackle the different financial challenges as well as opportunities that could not

have been addressed in the same way outside a partnership. This therefore makes strategic

partnership as one of the financial strategies that NGOs adopt in order to counter their

financial challenges (Boue & Kjaer, 2010). Lowering transactional cost through strategic

partnerships also reduces interdependence and risks and thus improves efficiency.

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Maintaining these partnerships can assist in lowering such external costs through

predicting some of the externalities that consequence from transactional costing (Barney,

2013). This lowers the chances of extra cost of monitoring and governance and would

thus lower the overall cash out flow hence stabilizing the financial position of the NGO.

Diversification of revenue on the other hand, is also important to the organization so as to

improve the financial stability of NGOs. According to a survey done by Suri (2009),

economic crisis has always had a strong impact on the NGOs revenue trends with having

decreased sources of funds. In order to respond to the economic crisis, NGOs have tapped

on international markets for better funding streams. As investigated by Boas (2012),

financial support from international governments and their respective agencies have

assisted in providing the NGOs with great opportunities. With the financial challenges

that most NGOs face, responses to these challenges with the same entrepreneurial

attitude, efficient planning and hard work have at least built a successful financial strategy

for most of these NGOs (Bezuneh, 2000).

Considering some of the financial strategies, most financially struggling NGOs are said to

have lack of clear mission and a strategic direction; these tools that are known to be the

necessary skills towards effective management of resources for sustainability (Ahmed,

2012). Financial sustainability is attained when an organization is capable of offering

products and services to the market at a price that wraps up their entire expenses and

generates a profit. Effective operations management is a critical tool as it helps to ensure

organizations meet its objectives and needs of the society over a sustainable period of

time (Kiev, 2003). Operations management would include effective planning of activities,

decision making and effective and responsible management of the purchase, production

and distribution of products and services.

The NGO’s in Kenya are under the control of The National Council of NGOs, more often

known as the NGO council of Kenya. The Non-Governmental Organizations Co-

ordination board more commonly known as the NGO Co-ordination Board was

recognized by an Act of Parliament in 1990 and began its business on June 15, 1992

(NGOBUREAU, 2011). The main reason for the formation of the board was to rationalize

and make more efficient the registration and co-ordination of NGOs.

Sustainability and financial stability of NGOs have been a challenge in Kenya. Financial

stability has become a catchphrase for NGOs within the development circles. It explains

4

the ability of the NGOs to work for its objective and being able to provide the society

with the objectives aimed even after external support is terminated. Not all are able to

accomplish this objective. The study notes this observable fact of the financial challenges

faced by the NGOs and therefore seeks to find the correlation of the financial strategies to

the financial sustainability of NGOs in Nairobi and how it affects the overall

sustainability of the NGO in the sector.

1.2 Statement of the Problem

There have been several observations and literature reviews on the financial challenges

faced by NGOs from various researchers and scholars. According to Rothlauf (2011),

financial management processes have generally been weak and have always been a

challenge to the NGOs. These are usually due to conditions of resource insufficiency; that

is considerations of events and social development activities which require most of the

organizational funds but in return no income generating activities take place. When

NGOs face such challenges, they require tactical planning of financial strategies resulting

to a positive impact on the overall sustainability of the organization (Chenhall, Hall &

Smith, 2012). Appropriate financial strategies have seen to be benefiting the NGOs in

terms of their financial sustainability but difficult economic times such as increased

inflations or global recessions have always affected the overall financial sustainability of

the NGOs in one way or the other (Waiganjo, 2012). There are many NGOs that continue

ceasing maneuver by the passing days usually due to lack of financial management and

sustainability. New NGOs also fall into snare of instability as they would operate for a

specific period of time and then grow fainter. NGOs are mostly known only with the

concern of elevating their resources and developing them depending on their available

planned budgets (Ng’ethe & Mugambi, 2012). This is a condition of concern that has

locked NGOs in a reliance syndrome which questions their financial stability and hence

their survival in the community. Despite the increased efforts by various strong donors

like USAID, DFID, OXFAM, World Bank, etc, on capacity building procedures of the

NGOs with refresher courses on the best applicable practices in the NGO sector, NGOs

need to adopt appropriate financial strategies to have a more reliable financial position

and gain sustainability (Nicklous, 2012).

The study analysis centered its base on the several financial strategies adopted by NGOs

and how it affects their financial sustainability in the sector. According to the study

conducted by Ahmed (2012), on the factors affecting the financial sustainability of NGOs

5

in Kenya, different sources of funding have been identified. Nevertheless, according to

the researcher’s knowledge, at the time of the study, no local studies had focused on the

impact of financial strategies on the financial sustainability of NGOs in Kenya. The

research recommendation was stated in the research conducted by Ahmed (2012) on the

factors affecting the financial sustainability of NGOs in Kenya. It is this consideration

that the researcher had in mind the aim to fill the obtainable gap by carrying out a study

on the how the financial strategies affect the financial sustainability of NGOs in Kenya.

The study reference was made to the NGOs in Nairobi only. As noted from the NGOs co-

ordination board online, the NGO Bureau, there are 26 sectors of NGOs in Nairobi. The

researcher had aimed to target 2-3 randomly selected NGOs from each sector summing to

75 NGOs to survey on the effect of financial strategies on the financial sustainability of

these NGOs.

Understanding the impacts that income diversification had on the financial sustainability

of NGO’s in Kenya is what the study focused on as one of the financial strategy. Study

investigation by Heinzberg (2012), identified income diversification as one of the factors

affecting the financial sustainability of NGOs (Heinzberg, 2012). Income Diversification

in general describes the level of activities that the NGOs take part in that aims at

minimizing dependency on some other type of income (donations), grants, some ruling

consumers, one particular country that is known to be the main source of funding or also

minimizing dependency on favorable currency exchange rates (Boas, 2012). It had been

studied that income diversification affects the financial sustainability of NGOs but

reference have only been made to one particular NGO, which in the researchers

knowledge is not enough to understand the level of impact it has on the organizations

financial sustainability. This study therefore focuses on income diversification being one

of the financial strategies that may affect the financial sustainability of the NGOs.

Secondly, the rising interests in strategic partnerships can be credited to “the realization

that strategic partnering can promote effective results for all concerned: Businesses,

NGOs and especially the society/community” (Boue & Kjaer, 2010). Therefore, strategic

partnership had also been identified as one of the financial strategies for NGOs. In the

literature, there is no particular agreement on whether strategic partnerships are similar to

firm-firm collaborations. There are only few scholars (Beckham, 2007), who have

reviewed the applicability of theories elaborating firm to firm collaborations to firm to

NGO collaborations and these have therefore given way to antithetical results. Few

6

studies (Graf, 2011) also argue on the opinion that the mainstream solitary sector

partnership theories of firm-to-firm collaboration can also be applied to collaborations

between firms and NGOs. This discloses the importance of further research regarding the

effects of strategic partnerships of NGOs and firm on the NGOs financial sustainability.

The researcher hence aimed to target strategic partnerships as another variable of

financial strategies to survey on the effect it has on the financial sustainability of NGOs.

The several studies that focused on the strategic planning as a financial factor for NGOs,

according to the researcher’s knowledge, had missed out on the elaboration of the

correlation it held on the overall financial sustainability of the organization. As

demonstrated by Grunewald (2011), strategic partnership between NGOs and other

business organizations were seen to strengthen the quality of humanitarian aid, but the

limit to which it contributed to its financial sustainability was not quite elaborated in

brief. A study by Damlamian (2006) focused on corporate and NGO partnerships as a

sustainability factor for the development of both the organization, once again, the

elaboration on how the strategic partnership affected the financial sustainability of the

NGO was not quiet focused on. This study therefore aimed to fill that gap and investigate

on the effect it might have had on the financial sustainability of the NGO under survey.

Thirdly, strategic financial management was usually an aspect that was given a very low

priority. This was more often exemplified by poor financial planning and monitoring

systems (Waiganjo, 2012). Since NGOs function in a speedy changing and a competitive

world, if they are to endure in a challenging environment, managers need to expand the

important understanding and self-assurance to make efficient use of the appropriate

financial management tools and resources (Lewis, 2009). The study thereby focused on

how strong is the correlation is between strategic financial management and the financial

sustainability of NGOs in Kenya. A study investigation by Ng’ethe & Mugambi (2012),

had nevertheless focused on this strategic financial management as one of the financial

strategies adopted by NGOs in Kenya, but there was a gap in presenting the impacts it

held on the overall financial sustainability of the organization. The level to which

strategic financial management affected the financial sustainability of the NGO had not

been addressed. The study aimed to bridge this gap and expand the knowledge on the

effects of different financial strategies on the financial sustainability of NGOs.

Lastly, but not at the least, the researcher centered this study on investigating whether

participating in income generating activities improved the financial sustainability of

7

NGOs to any better stage. The study aimed to focus on income generating activities in

NGOs as one of the financial strategies and study its impact on the financial sustainability

of the organizations under survey. Income generating activities have been studied to be

one of the financial strategies that enhance NGOs financial sustainability to a great extent.

However activities such as social entrepreneurship, unrestricted income generating

activities, business activities, endowment funds, public contributions and corporate

alliances have been studied to improve the financial status of NGOs in Uganda (Mallete,

2013), but according to the researchers knowledge, there are no such studies conducted in

Kenya to substantiate that these income generating activities may also be used to improve

the financial status of NGOs in Kenya. This study therefore aimed to fill the knowledge

gap and investigate on the effect of these income generating activities on the financial

sustainability of NGOs in Kenya.

1.3 Purpose of the Study

The purpose of the study was to investigate the effects of financial strategies on the

financial sustainability of the NGOs in Nairobi, Kenya.

1.4 Research Questions

The study aimed to respond to the following questions:

1. How does income diversification affect NGO’s financial sustainability?

2. How does strategic financial management affect NGO’s financial sustainability?

3. How does participating in income generating activities affect NGO’s financial

sustainability?

4. How does strategic partnership of NGOs with other firms affect the NGO’s

financial sustainability?

1.5 Significance of the Study

This study provides significance to the different stakeholders of the NGOs, such would

include as follows:

1.5.1 Managers of the NGO’s

This study carried out would not only be of importance to the researcher and the NGO’s

involved in the study but also to other managers in the NGO sector. It would assist them

in choosing better their strategic plans and practices and understand how such practices

8

would assist them in providing their NGO’s with better and stronger financial

sustainability.

1.5.2 Owners of the NGO’s

The owners of the NGOs will be able to identify their level of contribution in the

direction of the success of the NGO in terms of its financial sustainability. This would

enhance their understanding better in the ongoing operations and would stimulate them to

work on their individual roles more efficiently.

1.5.3 Society

The study would also assist in understanding and stabilizing the financial status of the

NGOs hence prompting its longer survival in the society. This would allow them to carry

out more society serving activities with better usage of resources hence benefiting the

society.

1.5.4 Other Researchers and Scholars

The study can also be valuable to other researchers and scholars as it would act as a base

for further research. The academicians and scholars will be able to use this study to

understand how NGOs can survive through financial instability and provide insights of

different strategic processes that can be used. The study acts as a reference provision for

further researchers on other topics of related importance.

1.6 Scope of the Study

The scope of the study aimed to target the financial managers within the NGOS in

Nairobi, Kenya. The study mainly focused on investigating on the effects of financial

strategies on the financial sustainability of NGOs in Kenya. The study was therefore

limited to the survey of 75 NGOs selected from the different sectors of NGOs in Nairobi,

as listed by the NGO co-ordination board of Kenya.

1.7 Definition of Terms

The researcher has explained in brief some of the subsequent concepts used so as to make

its understanding and interpretation in this study clear.

1.7.1 Financial Stability

This is referred to as a state in which the financial system of an organization is capable to

survive economic shocks and is able to reach its basic objectives, that is the

intermediation of financial funds, management of risks and the arrangement of payments

(Stain, 2011). The financial stability in this study is measured in terms of liquidity

9

position of the NGO (the ability of the NGO to pay its short and long term debts), the

capital structure of the NGO (relationship between the equity and debt of the NGOs), and

net and gross profit margins (the contribution margin of the revenues over the total

expenses).

1.7.2 Financial Management

Financial management refers to all efforts and measures undertaken so as to ensure

enough funding is available at the right time to meet the needs of the organization (Riley,

2012).

1.7.3 Funds

Funds are defined as a sum of resources saved, usually in terms of monetary values, for a

particular purpose (Ross, Westerfield & Jaffe, 2002).

1.7.4 Fund raising costs

Fund raising costs are referred to as the amounts of monetary value used up to persuade

others to make charitable aid to the NGOs. It includes spending on advertising and direct

merit materials, agent’s charges for acting as fund raiser on behalf of the NGO (Ahmed,

2012).

1.7.4 Risk Management

Risk Management is defined as the planning, organizing, leading and controlling

processes of the activities of an organization so to diminish the effects of risk on the

organization’s earnings and capital to the minimum. Risk management not only develops

the processes including risk with accidental loses, but also financial, operational, strategic

and other related risks (Rouse, 2010).

1.7.5 Strategy

Several explanation of strategy found in the literature of business management mainly

focuses on any one of the four main categories, that is, strategy being a plan, prototype,

position and viewpoint or perspective. With the different review of literature on strategy

Nicklous (2012) states that, “strategy is a plan or a means of getting from here to there, a

pattern in actions over time, a position, which in essence reflects decisions to offer

particular products or services in particular markets and a perspective, that is, a vision and

direction, a view of what the company or organization is to become”.

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1.7.6 Strategic Financial Management

Strategic financial management is defined as the distribution of the scarce resources to

recognized probable strategies amongst competing opportunities and undertaking needed

crucial deeds so as to monitor the progress of the organization in the aim of attaining the

organizational objective (Alexander, 2012).

1.7.7 Sustainability

As stated by Heinzberg (2010), “The essence of the term sustainable is that which can be

maintained over time”. By insinuation, this states that any organization that is

unsustainable will not be maintained for long and will eventually cease to function at

some point. The term sustainability in this study has been used to state the ability of an

NGO to safeguard and run enough human, physical and financial resources in order to

fulfill its assignment efficiently in the long term.

1.7.8 Strategic Partnerships

Strategic partnerships as defined by Vonotas (2009), refers to a web of agreements where

two or more partners share a commitment to reach a common goal by bringing their

resources together and coordinate their activities.

1.8 Chapter Summary

This chapter aimed to address the crucial significance and consequences of financial

strategies as an influential means of gaining financial sustainability in NGOs. Also

covered was the purpose of the study and the objectives that guided the study within the

specified scope, in terms of geographical means. The chapter looked at the aim of this

study and outlined the research questions that were addressed by the study. The statement

of the problem to which this study was addressed to was also specified together with its

significance as well as the scope of the study, which in our study term was Nairobi,

Kenya.

11

CHAPTER 2

2.0 LITERATURE REVIEW

2.1 Introduction

This chapters presented literature and academic review on financial strategies with

reference NGOs. Books, journals as well as web articles had been used as the major

sources of literature in this chapter. The chapter had been prearranged with orientation of

the main areas that the study had focused on. The first section presents a literature review

on the theories related to income diversification as one of the financial strategies,

followed by second section presenting a literature review on the strategic partnerships.

The third section presents a literature review on strategic financial management and the

forth section elaborates on the literature related to NGO participation in income

generating activities. The last section of the chapter presents the chapter summary in

brief.

2.2 Income Diversification

Diversification of revenue is important to the organization so as to improve the financial

stability of NGOs. According to a survey done by Suri (2009), economic crisis has always

had a strong impact on the NGOs revenue trends with having decreased sources of funds.

In order to respond to the economic crisis, NGOs have tapped on international markets

for better funding streams.

As investigated by Boas (2012), financial support from international governments and

their respective agencies have assisted in providing the NGOs with great opportunities.

With the financial challenges that most NGOs have faced, responses to these challenges

with the same entrepreneurial attitude, efficient planning and hard work have at least built

a successful financial strategy for most of the NGOs in their main activities in terms of

financial sustainability (Bezuneh, 2000). NGOs have come up with numerous measures

by which fund raising activities have been represented and directed at the general public

by holding fund raising events. They have also managed to tap onto new corporate donors

for monetary and social support (Herlitschka, 2009). Cost-recovery components have also

been included in new program implementation strategies where the program pays all or

part of the program costs (Henin, 2002). To date, NGOs are seen to own and manage side

businesses such as restaurants, being part of tourist industry, medical clinics or other

businesses. As one of the definition stated by Henin, (2012), “The terms income

12

diversification describes a number of activities that strive to reduce the dependence on a

specific type of income (e.g. donations, earned income from a specific product or

service), specific donor or grant maker, dominating customer, country that is the only or

main source of funding and currency in which most or all funds are paid out”.

2.2.1 Resource-Based Theory

The resource based theory squabbles over the fact that organizations gain a competitive

advantage by building up and utilizing resources that are exceptional and tricky to copy

and substitute (Graff, 2011). Its existing importance is explained not only by its

supremacy in academic literature and journals, but also by its importance placed in the

strategic studies taught to students and undergraduate, masters’ and executive

practitioners (McWilliams & Seigel, 2001).

Conventional strategy models, such as Michael Porter’s five forces model, all center their

focus on an organization’s external competitive environment. Many such models neglect

the importance to focus on the organizations internal strengths and weaknesses. Converse

to that, the resource-based view strategy places a considerable importance on the need for

a link between the organizations internal capabilities and external environment (Graff,

2011). RBV strategy views the organizations as a compilation of different skills and

capabilities that pressures strategic financial growth and organizational development. This

tends to push most NGOs into more strategic financial management.

The RBV was a concept first recognized by Wernerfelt in 1984, and has even since

developed into a strategic thought of growth (Cleland, 2009). Depending on this view,

organizations develop their competitive advantage from their ability to gather and

develop an appropriate blend of resources. Since gaining sustainable competitive benefits

is attained by continuously working on exploiting or creating new resources, some

management specialists advice that organizations’ internal processes should work on

creating resource bundles that would assist them in building a sustainable competitive

advantage, whereby competitors would not be able to imitate the unique resource

combination (Meding, 2009). Meding (2009) also places a consideration on a fact which

is usually agreed upon most strategic managers and specialists; “Business strategy is

concerned with the match between the internal capabilities of the company and its

external environment”. Many NGOs that operate under financial distress and instability

witness an extreme unstable environment. These environmental distresses include local

economic conditions to regional politics, in which all areas of society face chaos in and

13

after political instability. In order for NGOs to match such an environment, the internal

capabilities of the organization must be supple, adaptive and varied (Meding, 2009).

Sharma (2000); classifies organizational resources into three main groups; physical

resources, human capital resources and organizational capital resources. These resources

are the ones that allow an organization to visualize and apply strategies that tend to

progress organizations efficiency and effectiveness. Nevertheless, under certain

conditions, such resources turn out to be a base for financial stability for the entire

organization.

An organization with more than one source of income and diversified RBV is likely to be

more broadened in their financial horizons than an organization that depends only on one

source of income. And also that an organization that has its income equally distributed

among its different sources of income would be more diversified than an organization that

has its income unequally distributed like 90% of income incorporated by one source and

10% by another (Yan, 2008). The resource-based view of an organization gives an

opportunity to diversify its income through identifying is applicable resources and with

appropriate utilization of each. For many NGOs, the degree of income diversification

depends on the amount of resources available in the organization, how are the resources

to be utilized, the percentage of funding available from donors, the proportion of funding

from international donors in comparison to funding from local donors, percentage of total

income being earned from self-financing and percentage of self-financing depending on

the largest customer or on largest selling product or service (Alymkulova, 2005).

Nevertheless, organizations that consider income diversification as one of their strategy

for financial sustainability must put into considerations some of the factors such as

organizational goals, organizational capacities in key areas and available strategies aimed

for income diversification.

For most NGOs, social projects work as a strategy to broaden their horizons on their

funding base, limit their dependence on donors and pull through and try to financially

support their entire program costs (Reardon, 2000). In these cases, social endeavors

would mainly offer ways to decrease program arrears and utilize the organizational

resources more efficiently. Social enterprise is recognized to be one of the main financial-

sustainability strategy constituent. It refers to any socially accountable income building

activity whose income is utilized to sustain and maintain the organization’s overall

mission (Grant, 2001). Increasing frustrations of the NGOs on their financial status quo

14

and their longing to minimize dependency on donors have pushed these organizations to

make use of the private sector entrepreneurial rules (Seipulnik, 2005). Counterparts have

initiated the social enterprise concept to NGOs in a belief to build a new strain of

entrepreneurs and to rouse the configuration of a larger and a more sustainable pool of

resources for NGO financial stability scheme (Mint, 2003).

Financial objectives are set by NGOs that seek to diversify their income knowing that

every organization is different and unique with its own capabilities (Barney, 2013).

However, there are different basis of practical support, defined information and thoughts

for NGOs that want to diversify their income base and survey on financial stability not

only as one particular source of income but rather as a whole process including various

related parts (Sharma, 2000).

Income diversification should start with strategic planning and analysis of both the

internal strengths and weaknesses of the organization as well as a scan of the external

environment in terms of competitor analysis, opportunities and other threats. Apart from

an analysis of the internal and external environment of the organization, and its cost

effectiveness and risk management, organizations also need to take in charge the

suitability of these activities in terms of the organizations’ mission, vision, values and

culture (Grant, 2001). NGO’s managers and leaders play a crucial role in determining the

necessary change required in the processes associated with revenue diversification, be it

an overall organizational change or a cultural change. There are many other ways to

increase funds both internationally and locally in different countries of the world. Some

of such sources of revenue give in direct financial assistance to NGOs for their social and

environment activities and programs. However others work through organizations that

prefer providing assistance on financing their projects on their behalf (Kaus, 2012).

The accomplishment of income diversification strategies and tactics are mainly dependent

on the organizations leadership capability to communicate effectively with the external

stakeholders of the NGOs. NGOs are required to reinforce consciousness and alertness

around the range of programs and activities that they commence and also have an added

value that they generate for the society; by assisting potential partners so as to assess their

different funding options (Minot, 2003). Large and widely based NGOs are more often

enhanced to broaden their horizons on their funding sources than most small NGOs. They

are usually opportune to take advantage of their recognizable name and logo. They are

15

also likely to have better technical skills which are used to support their social and

commercial activities (Lubatkin & Chatterjee, 2007). They are also known to have better

connections and links with outside groups to form collaborations with as one of the other

strategies of income diversification. Internally larger NGOs are also equipped with better

experience with working on new programs and adapting with organizational change.

Nevertheless, such large organizations together with the benefits that they opportune, they

often even have a greater need to look for more reliable funding from outside due to their

increased costs for support services and overhead (Shapiro, 2003). Smaller NGOs

however, are advantaged with a relatively small amount of self-earned revenue that is

more likely to make a large difference in ensuring their financial stability.

The potential proposition for resource dependence theory is diverse. At first, peripheral

control of NGOs through its exposure to the market forces or the external environment as

well as the use of the short-term contracts may lead to NGOs being business oriented.

This will help NGOs compete more effectively with other for-profit organizations and

increase their financial security. Secondly, external control of the NGOs may also

increase its ability to build innovative programs that would result in their goal

accomplishment. Bounded by the external environment, NGOs are encouraged to

influence their programs to match with the preference requirement of their donors,

regardless of the organizations’ beneficiary need.

2.3 Strategic Partnerships

The rising interests in strategic partnerships can be credited to “the realization that

strategic partnering can promote effective results for all concerned: Businesses, NGOs

and especially the society/community” (Boue & Kjaer, 2010). Therefore, strategic

partnership had also been identified as one of the financial strategies for NGOs. The

several studies that have focused on the strategic planning as a financial factor for NGOs,

according to the researcher’s knowledge have missed out on the elaboration of the

correlation it held on the overall financial sustainability of the organization. As

demonstrated by Grunewald (2011), strategic partnership between NGOs and other

business organizations is seen to strengthen the quality of humanitarian aid, but the limit

to which it contributes to its financial sustainability had not quite been elaborated in brief.

A study by Damlamian (2006) have focused on corporate and NGO partnerships as a

sustainability factor for the development of both the organization, once again, the

elaboration on how the strategic partnership effects the financial sustainability of the

16

NGO had not quiet been focused on. Nevertheless, there has been no particular theory

that dealt with all the different aspects of the strategic partnerships of NGOs with other

businesses. The study literature therefore reviewed the well-entrenched theories, such as

the stakeholders theory, transaction cost theory and social-network theory as they are

important to the strategic partnership of NGOs with other businesses.

2.3.1 Stakeholders Theory

Most financial and strategic management of NGOs view their organization’s primary

function being the maximization of their financial returns (Neegargard, 2010), however,

the stakeholder theory takes a step ahead in the organization’s objectives in terms of its

functions and dependencies. Stakeholder theory is one of the firm management theories

that have been developed by R.E. Freeman. The theory was to address the question of

why businesses should consider prioritizing the interests of the organization’s

stakeholders and build value for their shareholders (Boue & Kjaer, 2010). Freeman

widely describes a stakeholder as any individual or group who affects or is affected by the

organizations objectives, either achieved or lost (Freeman & Reed, 1983). A more narrow

definition to it can however be stated as stakeholders being groups or individuals, on

which the organization is entirely dependent on for its sustainability (Fontaine, Haarman

& Schmid, 2006). Freeman also argues that a success of an organization is dependent on

the management of the different and more often conflicting interests of the organizations

stakeholders and simultaneously on the never ending management of the organizations

over all relationships with its stakeholders (Freeman, 1984).

Gradually, stakeholders have started questioning the organizations on how do they serve

the society and what can they do to these societies and the other way round of questioning

the society on what it can do for the organization (Warhurst, 2005). Many of the

stakeholders have been pressurizing the organizations to change according to their

expectations. Moreover, a study by Boer & Kjaer (2010) also states that stakeholders

have started requiring their organizations “to be a positive force, to contribute to broader

societal development goals and to work in partnership with others to solve

humanitarian crises and endemic problems facing the world such as disease and poverty,

climate change and environmental stewardship”.

Due to the accelerating pressures and risk of losing reputation of the poor management of

stakeholders, organizations and other companies have begun to pay more attention and

prioritize the needs of the stakeholders (Googins and Rochlin, 2000). Organizations have

17

started to react with the attempt to appeal to and connect with their stakeholders, hence

leading them to look through the stakeholder management (Huijstee & Glasbergen,

2008). Given that the stakeholders’ expectations keep changing over time, dialogue is

important to sense their constantly changing interests and demands. Dialogue is also

useful in giving the organization’s own viewpoint to the stakeholders (Waddock, 2002).

However such dialogue could appear in many ways. Morsing & Schults (2006)

differentiates between the different communication strategies starting from the lowest

levels of intensity where the flow of information is just in one direction, to high

interactive involvement where stakeholders are directly engaged (Morsing & Schults,

2006).

NGOs are normally supposed to be substitutes for societal and environmental needs as

their organizational objectives are usually based on social representation (Valor & Diego,

2009). For business organizations, working with the NGOs can be more suitable than

trying to please and managing every stakeholder individually (Warhurst, 2005).

According to the stakeholder’s theory, forming strategic partnerships with NGOs has

been seen as the most potential stakeholder management approach as it would allow a

higher degree of information and knowledge flow. Hence, stakeholder theory holds much

potential to elaborate the growing interests in the strategic partnerships between the

NGOs and businesses, but however it fails to explain the impact it has on the

sustainability of the NGOs.

2.3.2 Transaction Cost Theory

The transaction cost theory states that “in imperfect markets, organizations face positive

transaction costs which have influence on the price of market transactions” (Graf &

Rothlauf, 2011). Graf & Rothlauf (2011) also describes transactional costs as “costs for

running an economic system”. Costs as such include contracting and negotiating costs as

well as costs incurred in monitoring and governance. Contracts don’t usually include all

possibilities that the organization may encounter and they therefore need to be

renegotiated. This usually accounts for extra costs to be incurred for the organization to

encounter.

Forming strategic partnerships with other businesses can assist in lowering such

transactional costs through adopting some of the externalities that consequence from

bargaining and contracting (Barney, 2013). Strategic partnerships usually entail contracts

that put both the partnered organization into a mutual hostage position. This lowers the

18

chances for the partners to get involved in other opportunistic behaviors, hence lowering

the overall transaction costs and therefore stabilizing the financial position of the

organization (Arya & Salk, 2006).

Lowering transactional cost through formation of strategic partnerships also reduces

interdependence and risks and thus improves efficiency (Yaziji & Doh, 2009). Risk

reduction can also be achieved by sharing the risks with the partner. This is why projects

that involve higher level of risk or large resource involvement may run through strategic

partnerships and not just by one organization on its own (Pfeffer & Salancick, 1978).

Transactional cost minimization hence plays a role in strategic partnerships since firms

can reduce risk and reach financial sustainability (Iyer, 2003).

According to Schoonhoven (1996) firm-NGO strategic partnerships permits businesses to

achieve a level of financial sustainability which would allow them to take ahead their

organizational activities without trouble. These objectives can be attained with minimized

costs when organizations form strategic partnerships rather than launching activities on its

own (Penrose, 2009). The focal firm can make use of the NGOs reputation within the

society, which otherwise would be needed to be built up from the beginning. For a firm to

build reputation on its own Das & Teng (2009) states examples of monetary costs for

advertising and managing offices for corporate matters and communication including

costs for developing product quality to be addressed by the firm. However giving too

much importance to reputation, brand and quality development may push the organization

to bankruptcy (Arya & Salk, 2006).

2.3.3 Social Network theory

Social Network theory is another theory that gives importance to strategic partnerships of

NGOs with other business organizations. It gives a sociological view point of how

relationships are recognized and maintained. This theory is measured to be the focal to

strategic partnerships of NGOs with business organizations. It places its main focus on

social interface and network relations between and within organizations (Yaziji & Doh,

2009). Understanding such relationships is critical because as Boue & Kjaer (2010) the

social background from previous partnerships and considering importance to strategic

independence can pressure partnership decisions. Social network theory is likely to

provide significant data about the partnered organizations’ capability and reliability.

19

There are two important considerations to be placed in the social network theory (Kilduff

& Tsai, 2003), the structural pattern of the network itself, and the capability and objective

of individual actors. The theory studies the relationship between the organizations in

society that are symbolized by a separate system (individuals, groups, organizations).

Social capital is one of the important elements of consideration in the social network

theory and is known to be a prerequisite for the social development of transferring and

exploiting knowledge required for the partnership to succeed. This explains and pressures

on the knowledge of how possible synergies come into consequence (Selsky & Parker,

2005). Social network theory also highlights the importance of trust in relationships. As

Selsky and Parker (2005) explains in their study, that trust guides partners to incorporate

the partnership into their own framework.

2.4 Strategic Financial Management

With the rising expansion of the number of Not-for-profit organizations around the world,

running these important organization have been seen to be a challenge. NGOs, like any

other business organization have ongoing processes in order to look for different models

and tools that will assist them in managing and expanding themselves in a way related to

their mission, vision, values and culture (Samour, 2012). Hard efforts as surveyed have

been witnessed in some areas such as marketing, finance, human resource and

information technology. Nevertheless, there also has been a constant increase in needs to

look for appropriate methods to assist NGOs in addressing some of the main queries

about their purposes, such as, “What are they trying to achieve?”, “How are they going to

determine and achieve their missions and goals?”. These are the basic questions that

mainly fall into the concept of strategic financial management (Analoui, 2012).

Financial Management in NGOs is mainly related to making sure that required funds are

obtainable during the time of need and that they are accessible and most efficiently

utilized in ways that benefit the NGO (Bromideh, 2011). From an organization’s practical

point of view, financial management is mainly linked with appropriate financial planning

and control of the organization’s resources. Financial planning aims to enumerate

different financial resources that are available and maps the amount of expenditure

required. Nevertheless, financial management practices requirement can inflict a

significant burden on NGOs (Sharma, 2000). It is crucial to manage the movement of

cash flows in relation to the allocated budget for the project. Mainly, at a more corporate

20

level, the organizations aim lies in the progress of managing the financial status quo and

to achieve various goals that the organization sets at a given point of time (Ahmed, 2012).

Financial managers therefore strive to boost the resources at their point of disposal.

2.4.1 Agency Theory

A strong rule for financial planning, control and budgeting is to take it as a strategic

process. Firstly it is crucial to understand that the capabilities and future opportunities of

the NGO lie on the organizational ability to secure their funding so as to develop and

progress their projects. Also to be kept in mind that all the members of the organization

are to be equally taking part in the planning organizing and monitoring process of the

financial stability of the organization and not only those members who are directly in

charge of the functions of the organization (fundsforngos, 2013).

The Agency theory gives a structure of how the relationships between the different

interest groups within an organization exist and are managed. It views the organization as

a compound unit that holds various interest groups (Lewis, 2009). Each of these interest

groups tend to hold their own interests and makes sure that their interest do also serve as

an advantageous factor to the organization. Each entity group nevertheless recognizes the

fact that their success is a result of their organizational sustainability. This theory brings

out an absolute illustration of some of the actions of managers who serve to their own

interests that contradicts with the objective of the organization (Rojas, 2007).

Agency relationship is usually seen in organizations where one person called the Principal

appoints another person called the Agent, to execute some of the duties of the principal

and provides the agent with the suitable decision making authorities. In relation to

strategic financial management, such relationship is usually seen between the

shareholders and managers or the creditors and shareholders (Serpa, 2008). To be crystal

clear on the strategies to be adopted enhances the organizations credibility in the

community and from the donor’s point of view. Effectiveness of the financial plan is also

equally crucial depending on a strong organizational plan. It is important for the

organization to see not only the effectiveness of a long-term strategy but also to develop

skills that are able to manage the budgetary controls and short-term operations

(fundsforngos, 2013). A financial instrument therefore as described by Ahmed (2012) is

“A contract that gives rise to both a financial asset of one enterprise and a financial

liability of another enterprise”. When placing a consideration on financial assets, these

21

can be described as investments in equity and government securities (Hill, 2012). With

such critical management of financial assets it is quite natural with the existence of the

agency relationships, conflicts of interests are ought to happen. These conflicts are

defined as the agency problem which is known as the underlying reason behind the

unstable financial status of most NGOs around. Owolabi (2010) elaborates in his study

that choices of the various appraisal technique is one of the reasons behind most of the

agency theory problems where managers in pursuit of their own interest, would prefer

taking over projects with short lives than those financial opportunistic projects but with

longer lives. Asset selection and capital budgeting in NGOs therefore need to be

addressed with better understanding techniques (Cleland, 2009).

With reference to the study by Oyedele (2013), most NGOs are vulnerable to agency

problem due to the appraisal of risky projects where financial managers undertake risky

projects due to their own personal financial benefits. With most NGOs being highly risk

adverse due to their sensitive financial status, their strategic financial management is

usually poor because of these agency problems. Strategic financial management therefore

defines the importance of its effectiveness with the financial stability that it provides if

these agency relationships are managed accordingly.

2.4.2 Corporate Governance

When strategic financial management is kept into consideration, there are several other

terminologies that come into picture as other financial instruments. Such would include

originated loans and receivable; these are liabilities formed by the organization as a result

of lending money to debtors. The organization would also have other financial liabilities

which would mainly comprise of unrealized and unexpected grants as well as trade

creditors. Noting these financial instruments, if used efficiently the organization can

manage to find a balance between the debt and equity levels of the organization which

would then assist them in achieving its missionary objectives and also ensuring the most

efficient use of resources (Khun, 2011). However, consequences of poor financial

management are nevertheless very serious resulting to lack of financial stability of the

organization. Good financial management processes require effective organizational

planning and implementation of workable schemes and processes that can react positively

with the financial challenges faced by the NGOs. In general, money is the base of

survival for all organization. It is the one thing that takes up majority of management’s

time.

22

With the current global economy, the growth of the national economy is usually depended

on the important role of an organization’s supremacy, transparency and the competitive

structure within which it operates. This is due to the fact that it is these organizations that

build the national economic value (Rojas, 2007).

According to Rauh (2010), the NGO sector has always been seriously challenged by the

difficulties of choosing and utilizing the appropriate tools of management, such as

strategic management tool that would allow the organizations to improve efficiency in

their overall organizational performance. Within an organizational culture that is doubtful

of both the private and public sectored organizations owning various techniques and

motivations, it is crucial for an organization to work on the appropriate management tool.

It is accounted that many of the NGOs now put into practice quarterly-annual processes

more often aiming to place the organization in its targeted position in regards to its

mission and long term goals (Suarez, 2003).

Corporate Governance as defined by Dayton (1984) stated it as processes, associations,

and arrangements through which the board of directors supervises the work done by the

executives and ensures that work is appropriately done so as to achieve the objective of

the organization. While investigation by Rauh (2010) declared that NGOs also have a

mission, strategy and goals but different from profit making organizations, other scholars

argued that NGOs are also concerned with using their management practices as fluent as

those utilized by other private companies (Hill, 2012). Suarez’s (2003) study also argued

that attaining goals and surviving through financial challenges need appropriate

responding and adjusting to social, economic, political and legal environment and the

changes that they unfold. He also added to this argument that strategic planning is as

important for NGOs as it is for every other type of organization.

The achievement of a long-term financial strategy is mainly reliable on the organizations

ability to get linked and networked in terms of collaboration with other organizations, so

as to assist their basic need of locked funding throughout the years. It is also crucial to

think innovatively and assess different available options. For example, an organization

can start collaboration with other organization whose overall objective is varied from

their own, but with who the organization can work together on short term goals and

achievable projects through combined interests, ideas and efforts.

23

Nevertheless, previous research declares that management control tactics such as

accounting have a steady function (Lindenberg, 2003). Financial management plays a

crucial role in assisting NGOs with new programs to be put into practice. Some scholars

are even seen to be arguing that program objectives can only be accomplished through

defined technologies (Barney, 2013). As a result, technologies are becoming more

essential in relation to the conducted programs. The expansion of management control

investigation in the past decade had been linked with strategic and other non-financial

aspects of organizational management control systems. This has often been through in

combination of more planned, formal and financially sloping aspects (Khun, 2011).

Corporate governance is one of the important components in strategic financial

management of NGOs which the financial officers and all other senior managers of NGO

need to understand in order to have sound financial management of their NGOs.

Corporate governance principles that need to be appropriately addressed in organizations

are as follows:

2.4.2.1 Stewardship

The organization must ensure appropriate utilization of its resources that it is entrusted

with and must ensure that they are utilized for the purpose intended to (Korten, 2011).

The board of trustees has an overall responsibility for this. In practice, managers achieve

and work through this principle through strategic planning, building appropriate controls,

considering risks and by setting up systems according to the golden rules of the NGOs

field work to work in tune (Newton, 2012).

2.4.2.2 Accountability

The organization must explain how it has used its resources and what it has achieved as a

result to all stakeholders, including beneficiaries. All stakeholders have the right to know

how their fund and authority have been used. NGOs have an operational, moral and legal

duty to explain their decisions and actions, and submit their financial reports to scrutiny

(Jorison, 2012).

2.4.2.3 Transparency

The organization must be open about its work, making information about its activities and

plans available to relevant stakeholders. This includes preparing accurate, complete and

timely financial reports and making them accessible to stakeholders, including

24

beneficiaries. If an organization is not transparent, then it may give the impression of

having something to hide (Travis, 2002).

2.4.2.4 Integrity

On a personal level, individuals in the organization must operate with honesty and

propriety. For example, managers and trustees should lead by example in following

procedures and by declaring any personal interests that might conflict with their official

duties. The integrity of financial reports depends on the accuracy and completeness of

financial records (Egger, 2012).

SFM in general is therefore known as the planning and control process with focus on

allocation of financial resources (funds) in a manner so as to achieve the specified aim of

the organization. The methods and principles of financial analysis that are used by most

financial managers therefore should be extended to include consideration of strategic

factors, mainly those that are highly uncertain and unquantifiable but are usually ignored

by most financial models of appraisals. Strategic management if appropriately

administered can therefore be considered as one of the financial strategies for NGOs

financial sustainability.

2.5 Participation of NGOs in Income Generating Activities

The restrictions of responses on organizational well-being are well recognized through

the increasing economic and global crisis. On the other hand, many other development

agencies and donors are insisting on organizations to secure their revenue through their

own efforts. Abee (1994) recognized these efforts as “income-generating activities”. Abee

(1994) also stated that “Income-generating activities not only include working on an extra

income but also include business promotions, sewing circles, credit and savings groups as

well as youth training programs”. Generally income generating activities in definition are

agued to be initiatives that influence the economic aspects of organizational activities by

the use of economic tools such as credit. According to the study made by Basu & Basu

(2009), it is also argued that “Education and health provision, legal and political changes,

and global economics all affect the ability of an organization to secure their revenue”.

NGOs go through difficulties in managing their financials and looking to incessant

funding for their projects (Craig & Mayo, 2009). Reaching to donors for funding

assistance has now been seen as a challenge for NGOs due to the donors increasing

conditions and demands. They have scarce resource utilization skills and are more

25

commonly not always looking for locally but rather prefer for international donors to

approach them with funding assistance. Development practitioners have been debating

over to finding the best way by which they can improve the financial sustainability of

NGOs. Some studies disputes that income generating activities of NGOs help them to

raise their overall status in a society (Kandiyoti, 1988; Buvinic, 1987), while some other

studies find no positive result in the participation of NGOs in income generating activities

even after they are economically employed. Some studies in Kenya find that economic

empowerment has been the entry point for all NGOs if they are organized under a

common platform (Carr et al., 1996). Utilizing resources locally, gives NGO an

opportunity to increase their funding from local businesses, individual donors,

government as well as locally generated income (Steglich & Bekele, 2009). However, this

is only applicable when NGOs have powerful governance and responsibility mechanisms,

transparent and reliable strategies as well as trust from within the local boundaries. There

is a propensity to move interventions so as to match the organizations donor priorities as

the dependency of donors have seen to be increasing. There is also lack of funding noted

for project and organizational survival. NGOs should therefore be concerned with three

main features of survival in the sector, such includes, longer lasting impacts, the

permanence of resources, and the feasibility of the organizations (Craig & Mayo, 2009).

Organizational stability within each of the three features of survival necessitate perceptive

suppleness, that is, overall stability and survival of an organization depends on building

an appropriate link between the three categories in a complete strengthening way

(Gebretensay, 2010). Nevertheless, there has been a witnessed gap between what all

NGOs say and what they actually do and about how the general public views the NGOs.

Despite of all the social activities those NGOs do to support their society and building

stronger civil community, they usually tend to neglect what the local community actually

requires and ignore communication and listening practices with the local communities

(Rafiqul, 2011).

Nature and operations of economic development programs targeting the financial

sustainability of NGOs in particular, are also changing under the overall impacts of

economic reforms in Kenya (Basu & Basu, 2009). Adopting financial strategies to attain

maximum financial sustainability have now become one of the major targets of economic

development programs that are highly depended on accountability and participation. Non-

government sectors are now increasingly being recognized for these features. Thus the

26

non-government sectors are becoming more and more involved in the process of

economic development programs. Business activities usually produce revenue for NGOs

through the factors of productions and excellent combination of such factors in revenue

building programs. The main thought of having business conjectures and hazard

witnessing activities is to produce added revenues for the NGOs (Rafiqul, 2011).

However, many such organizations do not pursue such business skills. It is also quite

transparent that many NGOs tend to work in places where both the market and the

government policy are not so strict. Despite the fact that most NGOs work needed to be

supported by public funds, be it international or local donors, or governmental sources, it

is now time for the NGO sector to put into consideration of going to the public

themselves to raise their monetary values. As Ahmed (2012) had mentioned in his study,

“If NGOs are to concentrate on what they can do best, that is social work, then marketing

and fundraising becomes boundary management activities, which are of utmost

importance and yet should not demand too much time from NGO leaders, who very

frequently may not have the best skills and attitudes for such work”.

Income generating programs (IGPs) are planned to assist NGOs gain a level of self-

dependency in terms of their financial status. As long as economic contributions and

behaviors such as service provision, or trade are put into consideration, NGOs are likely

to reach up to the level of self-dependency required. The thought of being self-dependent

or self-relied is one of what most Nongovernmental organizations seek at the current

scenario. The fact that situations should not be created where NGOs are forced to rely on

outside assistance while they work for their own returns have degraded most

organizations pushing them towards adapting to self-income generating programs (IGPs).

In some of the little number of cases, IGPs are connected with a rule of local

incorporation; this assists the NGOs to chase their revenue as being a part of their host

community (Ahmed, 2012).

2.6 Chapter Summary

This chapter reviewed different literature written by various scholars on the particular

subject under study. It reviewed theories as well as empirical review on each of the

independent variables under consideration. The review also considered the social and

psychological factors related to each of the independent variable. The research

methodology on how the study is to be conducted is reviewed in the next chapter of

research methodology.

27

CHAPTER 3

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This section of the study reviewed the different stages and phases related to the data

collection methods and presented a review on the steps followed in completing this study.

It states the plan on how the required data for the study was collected, measured and

analyzed. This section presents an overall format and structure undertaken to assist the

researcher in answering the derived research questions. At this stage, decisions about how

the study was carried out in terms of data collection and how the respondents were

reached, is elaborated. This chapter therefore described the research design, population

and sampling design, data collection methods, research procedures and data analysis

methods. The chapter is so divided into subheadings to present each section in brief.

3.2 Research Design

With reference to the study conducted by Kerlinger (1986), research design is defined as

a plan and structure of investigation so envisaged for getting responses to research

questions or for testing the research hypotheses. The plan represents the overall tactics

and approaches used in collecting and analyzing the data so as to answer the research

questions. Cooper & Schindler (2003) stated that the importance of a research design is

an action and time based plan that is always depended on the research questions and

guidelines of selecting the sources and types of data required. A research design is a

framework for specifying the relationship with the study variables and sketches the

procedures for every research activity.

In this study, causal research design was adapted. In order to explain the relationship

between the financial strategy variables, the study took into account 75 NGOs operating

in the 26 different sectors of NGOs in Nairobi as a sample of the population of 1425

NGOs as listed by the NGO coordination board of Kenya. The research used correlation

and regression analysis to establish the relationship between the variables and the impacts

it had on the financial sustainability of the NGOs in Nairobi.

28

3.3 Population and Sampling Design

3.3.1 Population

Target population as defined by Ngechu (2004), is the detailed population about which

information and data are derived. The study by Ngechu (2004) also defined a population

as a distinct set of people, services, elements, events, group of things or households that

are being examined. Mugenda & Mugenda (2003), elucidated that a target population

must have some visible characteristics, to which the researcher aimed to take a broad

view of the results of the study. The target population of this study included all the NGOs

(1425) operating in all the different sectors in Nairobi listed under the NGO bureau by the

NGO coordination board of Kenya. The target population consisted of NGOs from all

sectors such as agriculture, children, culture, disability, education, environment, gender,

governance, health, HIV-AIDS, information, micro-finance, multi-sectorial, peace

building sector and many more. The NGOs varied in size and level of financial

sustainability.

3.3.2 Sampling Design and Sample Size

3.3.2.1 Sampling Frame

Ngechu (2004) highlights the importance of selecting a representative sample through

making a sampling frame. From the population frame the necessary number of subjects,

respondents, elements or firms were chosen in order to make a sample. The sampling

frame for a probability sample is an absolute list of all the cases in the population from

which a sample is drawn (Saunders et al., 2007). A sample is a slighter and more

accessible secondary set of the population that sufficiently represents the overall group,

therefore facilitating one to give a precise (within acceptable limits) image of the

population as a whole, with respect to the particular aspect of interests of the study. In this

study the sampling frame was retrieved from the official website of the NGO bureau and

coordination board of Kenya.

3.3.2.2 Sampling Technique

A stratified proportionate random sampling technique was used in this study to select the

sample. Due to the target population being large (1425), a stratified random sampling

method was the most appropriate to select the sample by first grouping the NGOs

according to their appropriate sectors (smaller strata) and then randomly selecting the

sample from the formed strata. According to Oso (2009), stratified proportionate random

sampling technique creates approximation of overall population parameters with greater

29

precision and makes sure a more delegate sample is resulted from a comparatively

homogenous population. Stratification aspired to minimize standard error by giving in

some control over variance.

3.3.2.3 Sample Size

The sample size for this study was 75 NGOs. This sample was randomly selected from 26

sectors of NGOs that represented 70% of the population of the sector that were aimed for

survey as provided in appendix A.

3.4 Data Collection Method

This study used questionnaires for primary data collection. The questionnaires were used

because they were straight forward and much appropriate for the large sample size chosen

in terms of time consumption. The questionnaires had sub-sections that were subdivided

depending on the main research questions. Only the first section that is Section A

intended to capture the background information of the participant such as gender, age,

working experience with the organization and the level of education. Other sections

wrapped the main areas of the study. As much as questionnaires may not be considered as

an appropriate tool, it is yet considered to be suitable for a larger sample size such as the

one chosen for this study, so as to enable the researcher to reach the large sample size

chosen for survey. Satyanarayana (1983) stated that a questionnaire is practical in

obtaining objective data chiefly because the participants do not feel manipulated by the

researcher in any way. Another study by Borg & Gall (1996) also added that

questionnaires have an added benefit of minimized cost and time consumption as an

instrument of data collection. The questionnaires in this study were managed by a drop

and pick-later method to the sampled population.

3.5 Research Procedure

Before the researcher started working on the field work, a pilot study was conducted to

pre-test the instruments. This was done so as to assess the transparency, validity and

reliability of the instruments (Mulusa, 1998). It is after this pilot testing, the main

research was conducted. However, to determine the validity of questionnaires, the pilot

test that was undertaken, administered the questionnaire on a pilot group of 15 NGOs

each randomly selected from 15 sectors of NGOs randomly selected. The population units

that was used in the pilot testing were not included in the final sample. The instrument

was administered by the researcher after which a decision was made to conclude on the

30

suitability, reliability and clarity of the instrument for the final study. Vague and

inappropriate items were revised so as to draw out the required information and to

improve the overall quality of the instrument. The questionnaires were then administered

for a period of 3 weeks. All data were recorded and also note taking was done

simultaneously to support the questionnaires. Follow up telephonic questionnaires were

conducted to cover any information that had not been attended to in the initial

questionnaire or for any un-clarified information. Data cleaning was appropriately done

before data analysis begun.

3.5.1 Operation of the Variables

The variables in the research study were be subdivided in terms of its indicators,

measures and scale, which enabled the data analysis procedure to be conducted with

efficiency. Table presented below reflects tabulated information on how each of the

variables was treated.

VARIABLE INDICATORS MEASURE SCALE

Income

Diversification

1 Fundraising and Development

plans

Number of fundraising

and Development Plan

Ordinal/

Interval

2 Taping International Funding

Streams

Level of Tapping of

International funding

streams

Ordinal

3 Corporate Donors sourcing Amount of Corporate

Donors

Likert

4 Owning and Managing other

businesses

Number of Businesses

owned

Ratio/

Interval

Strategic

Partnerships

1 Funding Based Partnership Number of Funding

Based Partnerships

Ordinal

2 Capacity Based Partnerships Number of Capacity

Based Partnerships

Ordinal

3 Trust Based Partnerships Number of Trust

Based Partnerships

Ordinal

4 Any other Strategic Alliances

with Businesses

Number of any other

strategic alliances with

Businesses

Ordinal

Strategic

Financial

Management

1 Financial Planning Did they have a

financial plan or

planning competence?

Ordinal

31

2 Financial Analysis Did they have

financial analysis?

Ordinal

3 Plan Implementation Did they have any

plan implementation

strategy?

Likert

4 Asset Selection Are they competent in

asset selection?

Ordinal

5 Stock Selection How good is their

stock selection skill?

Ordinal

6 Investment Monitoring Did they acquire any

investment monitoring

skill?

Ratio/Int

erval

Own Income

Generation

1 Social Entrepreneurship Level of participation

in Social

Enterpreneurialship

Ordinal

2 Unrestricted income

generating activities

Presence of

unrestricted income

generating activities

Ordinal/

Interval

3 Business Activities Level of participation

in Business Activities

Likert

Scale

Figure 1: Operation of Variables

3.6 Data Analysis Methods

The collected data were analyzed using both quantitative and qualitative data analysis

methods. Quantitative method involved both descriptive and inferential analysis.

Descriptive analysis such as frequencies and percentages were used to present

quantitative data in form of tables. Data from questionnaires were coded and logged in

the computer using Statistical Package for Social Science (SPSS). This involved coding

both open and closed ended items so as to run simple descriptive analysis to get

conclusions on data status. Descriptive statistics also involved the use of absolute relative

frequencies, measures of central tendency and dispersions. Data collected through the

open ended questions and analyses of documents were analyzed qualitatively through

content analysis. The collected data were first transcribed before the data were coded into

themes or categories. These involved breaking down the data into more manageable

pieces, sorting and sifting while searching for types, classes, sequences, processes,

patterns or themes. The aim of this process was to collect and reengineer the data in a

significant or a more understandable manner. The categorizing of the data was typically

based on the major research questions that were guiding the study. Generalization from

32

the themes about the phenomena in the questions and discussions in the light of the

available literature was also made.

The study also made use of inferential statistics. Since this was an inferential study and

the research study was mainly based on how the financial strategies impacted the

financial sustainability of the NGOs, a linear regression and correlation model was used

to analyze the degree of variance in the financial sustainability of NGO predicted by the

particular financial strategy. The measures of the independent variables were converted to

mean values and then to percentages using the rating/Likert scale so as to enable the

application of the linear regression model. Statistical significance of the independent

variables was determined by using the F-test. Using the regression Durbin Watson test for

autocorrelation of models residuals, t-test for the coefficients significance was also tested.

The liner regression equation for this study was as follows:

Y = X1 + X2 +X3 +X

Whereby:

Y Funding Sustainability (FS)

X1 = Income Diversification (ID)

X2 = Strategic Partnerships (SP)

X3 = Strategic Financial Management (SFM)

X Own Income Generation (IG)

= Error Term

3.7 Chapter Summary

The purpose of this study was to describe the research methodology of the research,

explain how the sample had been selected to be surveyed and describe the procedures in

designing the instruments and data collection. The chapter also provided an explanation

of the statistical procedure that was used in the data analysis process of the study.

33

CHAPTER FOUR

RESULTS AND FINDINGS

4.1 INTRODUCTION

This chapter reflected on the presentation and interpretation of the findings of the survey

conducted. The purpose of this study was to examine the effects of the financial strategies

on the financial sustainability of NGOs in Kenya, with specific reference made to 75

NGOs in Nairobi randomly selected from 26 different sectors of NGOs based in Nairobi.

The researcher had analyzed the data collected using frequency tables and figures to

present data in a form to portray critical information.

4.1.1 Response Rate

The researcher targeted a sample of 75 NGOs randomly selected from 26 sectors of

NGOs in Nairobi out of which 65 responses were obtained. This represented a response

rate of 86.7%. In obtaining the responses, the researcher came across 4 non-responders

and 6 refusals out of the research sample. There were no “out of scope” responses.

According to the study analysis conducted by Babbie (2002), a response rate of 55% and

above is known to be adequate for an analysis. The response rate for this study was

therefore adequate.

Frequency Percentage

Respondents 65 86.67

Non-Respondents 4 5.33

Refusals 6 8.00

Total 75 100.0

Table 1: Response Rate

4.2 RELIABILITY TEST

A pilot study was carried out to conclude on the reliability of the questionnaires. The pilot

study involved 15 respondents from the target population, each selected from 15 sectors

of NGOs in Nairobi. The reliability analysis was done using the Cronbach’s Alpha.

Cronbach’s alpha is a statistical measure that is used to gauge internal consistency or

reliability of a quotient test of a psychometric instrument by determining if all matters in

the research survey are within the same scale measure and construct (Tavakol, 2011).

34

Cronbach Alpha Number of Items

Strategic Financial Management 0.904 7

Income Diversification 0.937 9

Strategic Partnerships 0.800 6

Participation in Income Generating

Activities 0.932 7

Table 2: Reliability Analysis

Cronbach Alpha was calculated for all the four variables used in the study that formed a

artnerships

by Gliem and Gliem (2003) stated that any alpha value below 0.6 is seen to be unreliable.

Since all the variables have seen to be exceeding the threshold alpha value, it can

therefore be stated that all the four scales were reliable.

4.3 DEMOGRAPHIC INFORMATION

As part of the general information of the respondent, the researcher had requested

respondents to indicate their gender, their highest educational level and their working

experience at the NGO under survey.

On the gender of the respondent, the study found that 44.6% of respondents were female

and 55.6% were male respondents as shown in the below table. This showed that most of

the financial managers in an NGO are male. However it was difficult to precisely

conclude on that as the statistic on female managers in NGOs was also seen to be a

competing value in comparison to the statistic of male managers.

35

Frequency Percentage

Female 29 44.6

Male 36 55.4

Total 65 100.0

Table 3: Gender of the respondent

According to the tabulated information below, the study found most of the financial

managers of the NGOs being between the age brackets of 35-44 years. 30.8% of the

respondents were within the age bracket of 35-40 years, 21.4% of respondents were

between the age bracket of 31-34 years, 20.0% of the respondents were of age between

41-44 years, 12.3% were of age between 25-30 years, 10.8% of the respondents were

between the age of 45-50 years and the least of the respondents occupying 4.6% of the

sample respondents being between the age of below 24 years. From these statistics,

assumptions were therefore made that majority of the managers at an NGO are middle

aged.

Frequency Percentage

Below 24 years 3 4.6

25-30 8 12.3

31-34 14 21.4

35-40 20 30.8

41-44 13 20.0

45-50 7 10.8

Total 65 100.0

Table 4: Age bracket of respondent

With the level of education of the respondent, the study indicated that 58.5% of the

respondents held a postgraduate degree, 36.9% of the respondents held a bachelor’s

degree and 4.6% of the respondents held a diploma certificate as their highest level of

education. These statistics therefore showed that the respondents were well informed of

the financials and were hence reliable on receiving pertinent information on the subject

matter of the study The below table shows the descriptive on the highest level of

education of the respondents:

36

Frequency Percentage

Diploma Certificate 3 4.6

Bachelor’s Degree 24 36.9

Postgraduate Degree 38 58.5

Total 65 100.0

Table 5: Highest level of education of the respondent

The researcher also requested the respondents to indicate the bracket of years worked in

the organization under survey. This sought to understand whether or not the respondent is

well aware of the organizations operations. According to the findings as shown in the

table below, 56.9% of the sample respondents had a working experience of 5 years and

above in their organization, 30.8% had a working experience of 2-4 years in their

respective organization, 7.7% of the respondents had a working experience of between 1-

2 years and 4.6% of the respondents had worked in their respective organization for less

than 1 year.

Frequency Percentage

Below 1 year 3 4.6

1-2 years 5 7.7

2-4 years 20 30.8

5 years and above 37 56.9

Total 65 100.0

Table 6: Working experience of the respondent

Mean Standard Deviation

Trend of Cash Flow 2.82 1.044

Trend of Cost Recovery Rate 2.77 0.965

Trend of Capital Structure 2.81 0.957

Table 7: Trend of measures of financial sustainability for NGO in the last five years

The study also sought to examine the trend financial sustainability elements for the last

five years of operation of the NGO. From the findings as recorded above in the table, the

average trend of cash flow, cost recovery rate and capital structure for NGOs was noted to

be 2.82, 2.77 and 2.81 respectively. These values indicated that the financial trend of

37

NGOs was falling from an improving rate to only being stable. The standard deviation

within the NGOs under survey was to the minimum for the trend of capital structure

being at 0.957, followed by the trend of cost recovery rate being at 0.965 and the

maximum deviation was noted by the trend of cash flow being 1.044. However, with the

measure of spread for the set of NGOs under observation being small, assumptions were

made that the trends of measures of financial sustainability of the NGOs were seen to be

falling from an improving rate to only being stable.

4.4 STRATEGIC FINANCIAL MANAGEMENT

Frequency Percentage

Very Great Extent 35 53.8

Great Extent 27 41.5

Moderate Extent 2 3.1

Little Extent 1 1.5

Total 65 100

Table 8: Extent to which Strategic Financial Management affected the financial

sustainability of the NGO

The researcher had also requested the respondents to point out the extent to which

strategic financial management affected the financial sustainability of their respective

organization. According the study findings as tabulated above, 35% of the respondents

stated that their NGO was very greatly affected by strategic financial management, 27%

of the respondents stated the extent to be only great, 2% and 1% of the respondents stated

that their organization’s financial extent was affected to a moderate extent and little

extent respectively.

Mean Standard Deviation

Strategic Planning 1.55 0.751

Financial Analysis 1.65 0.779

Plan Implementation 1.83 0.858

Asset Selection 2.33 0.927

Stock Selection 2.89 0.935

Investment Monitoring 3.21 1.194

Table 9: Extent to which the different aspects of strategic financial management affect the

financial sustainability of the NGO

38

The study sought to identify the extent to which the different identifiable elements of

strategic financial management affected the organization’s financial sustainability. From

the findings as tabulated above, it was stated that strategic planning, financial analysis

and plan implementation affected the financial sustainability of NGO to a great extent,

with a mean score of 1.55, 1.65 and 1.83 respectively. Asset selection and stock selection

were noted to be affecting the financial sustainability of NGOs to a moderate extent with

a mean score of 2.33 and 2.89 respectively, while Investment monitoring was seen to

affect the financial sustainability of NGOs to a little extent with a mean score of 3.21.

4.5 INCOME DIVERSIFICATION

On the effect of income diversification on the financial sustainability of NGO, the

researcher sought to determine the importance of the different drivers for income

diversification to the NGOs financial sustainability. The researcher had also requested the

respondents to rate the effectiveness of the different income diversification strategies in

improving the financial sustainability of their respective organization.

Mean Std Dev

Risk Management 1.58 1.014

Mitigation of negative consequences of a sudden drop in

income 1.98 1.023

Fueling further growth of the NGOs activities 1.82 0.998

Gaining more flexibility in their internal financial

management 2.02 1.068

Reducing the danger that a withdrawal of funding forces the

organization to close down 2.02 1.023

Increasing the longer term reliability of the income stream 1.92 0.941

Reducing the impact of exchange rate fluctuation on income

in local currency 2.34 1.122

Reducing the impact of economic downturn 2.02 1.023

Being able to decide how to generate and spend financial

resources without restrictions 2.60 1.072

Being able to fund projects according to your priorities 2.75 1.061

Being able to say no to some sources of income because they

do not fit in the organization’s values 3.65 1.192

Table 10: Importance of Income Diversification drivers to an NGO

39

As per the above findings it was noted that majority of the income diversification drivers

had been seen as important and moderately important. Only one driver that was “being

able to say no to some sources of income because they do not fit in the organization’s

values” was seen as little important to the NGOs with a mean score of 3.65. On the

contrary, the drivers for income diversification were assumed to be applicable to all

NGOs as there was no much set of diversion from the set of objectives with a maximum

standard deviation of 1.192.

On the effectiveness of the different income diversification strategies in enhancing

financial sustainability at NGOs, the study also required the respondents to rate the

different strategies on the scale of 1 to 5, where 1 was very effective and 5 was

ineffective. From the findings as tabulated below, it was noted that owning and managing

business had been seen to be a moderately effective strategy in enhancing financial

sustainability at an NGO with a mean score of 2.58, while social entrepreneurship,

fundraising and development plan, tapping international funding stream and corporate

donor sourcing was noted to be effective strategies for enhancing financial sustainability

at an NGO with mean scores of 2.35, 1.80, 1.62, 1.97 and 2.58 respectively. On the other

hand, standard deviation of all income diversification strategies were all to the minimum.

This measures the spread of a set of observation being less deviation within respondents.

Hence it was assumed with minimum deviation, all the strategies fell under the category

of being effective and moderately effective strategies for enhancing financial

sustainability in NGOs

Mean Std Dev

Social Entrepreneurship 2.35 0.953

Fundraising and development plan 1.80 0.905

Tapping international funding streams 1.62 0.700

Corporate donors sourcing 1.97 0.790

Owning and managing business 2.58 1.036

Table 11: Effectiveness of various income diversification strategies in enhancing financial

sustainability at an NGO

40

4.6 STRATEGIC PARTNERSHIPS

Frequency Percentage

Not Involved in Strategic Partnership 23 35.4

Involved in Strategic Partnership 42 64.6

Total 65 100.0

Table 12: Organizations in strategic partnerships

From the above tabulated findings, 35.4% of the NGOs were not involved in any strategic

partnerships with any business, while 42% of the NGOs were involved in strategic

partnerships.

Frequency Percentage

Funding Based Partnership 37 88.10

Capacity Based Partnership 2 4.76

Trust Based Partnership 2 4.76

Any Other Partnership 1 2.38

Total 42 100.0

Table 13: Kind of Strategic partnership

It was noted from the above findings that 88.1% of the NGOs that were involved in

strategic partnership were noted to be under “funding based partnership”, while capacity

based partnership, trust based partnership and any other partnership incorporated a

minimal percentage of 4.76%, 4.76% and 2.38% respectively.

Frequency Percentage

Very Great Extent 39 60.0

Great Extent 23 35.4

Moderate Extent 3 4.6

Total 65 100.0

Table 14: Extent to which forming strategic partnerships affect the financial sustainability

of NGO

The researcher had also requested the respondents to indicate the extent to which they

thought strategic partnerships would affect the financial sustainability of their respective

organization. From the finding, 60% of the respondents thought that forming strategic

41

partnership affected the financial sustainability of their organization to a very great

extent, 23% of the respondents thought that forming strategic partnerships with any other

business affected their organization’s financial sustainability to a great extent while 3% of

the respondent thought forming strategic partnership would affect their organization’s

financial sustainability to only a moderate extent. With the percentage of funding based

partnerships and the importance of forming strategic partnerships with other business, it

was assumed that forming funding based strategic partnerships have enhanced the

financial sustainability of NGOs to a very great extent.

4.7 PARTICIPATION IN INCOME GENERATING ACTIVITIES

Frequency Percentage

Very Great Extent 14 21.5

Great Extent 37 56.9

Moderate Extent 11 16.9

Little Extent 1 1.5

Not at all 2 3.1

Total 65 100.0

Table 15: Extent to which participation of NGOs in Income Generating Activities affects

the organization’s financial sustainability

In order to place an understanding on importance of participation of NGOs in income

generating activities, the researcher had also requested the respondents to indicate the

extent to which their respective NGOs were affected by their participation in other

income generating activities. From the findings as tabulated above, it was noted that

56.9% of the NGOs were affected by their participation in income generating activities

only to a great extent. 21.5% of the NGOs were seen to be very greatly affected by

participation in income generating activities, 16.9% of NGOs were only moderately

affected by their participation income generating activities, while 3.1 and 1.5% of the

NGOs were not at all and only affected to a little extent respectively. This helped the

researcher to place assumptions on the importance of NGOs participating in other income

generating activities.

The researcher also sought to identify the extent to which the different income generating

activities that NGOs participated in, enhanced their financial sustainability. It was noted

from the findings, as tabulated below, all the identified income generating activities

42

enhanced NGOs financial sustainability to a great to moderate extent ranging from 2 to 3.

The measure of the spread of set of observation was seen to be a common range and

being on the lower side. This defined the NGOs findings on the extent to which their

financial sustainability was affected being less spread out and under a common range.

Mean Std Dev

Social Entrepreneurship 2.60 0.925

Unrestricted Income Generating Activities 2.67 1.047

Business Activities 2.84 0.946

Trust or Endowment Fund 2.17 0.814

Public Contributions 2.33 0.950

Corporate Alliances 2.40 0.925

Table 16: Extent to which the different income generating activities enhances the

financial sustainability of an NGO

4.8 REGRESSION ANALYSIS

The main purpose of this study was to determine the effects of the different financial

strategies on the financial sustainability of Nongovernmental organizations in Kenya. A

multiple regression analysis was therefore conducted to test the relationship between the

different variables (independent) on execution of strategic decisions. The research had

made use of statistical package for social sciences (SPSS V 22.0) to enter code and

calculate the measurements of the multiple regressions.

4.8.1 Model Summary

Model R R Square Adjusted R

Square

Std Error of the

Estimate

1 0.914 0.835 0.752 0.4541

Table 17: Model Summary

Source: Author Computation 2014

The independent variables identified by the researcher that were being studied, elucidates

83.5% of the financial sustainability being affected as represented by R square. This

therefore meant that 16.5% of the financial sustainability of NGOs was affected by other

factors not studied in this research. There should therefore be other studies to be

43

conducted to investigate on these other factors (16.5%) that affect the financial

sustainability of NGOs.

4.8.2 ANOVA Results

Model Sum of

Squares Df

Mean

Square F Sig.

1 Regression 2.543 3 1.294 6.220 0.0213

Residual 9.183 35 2.326

Total 3.736 38

Table 18: ANOVA

Source: Author Computation 2014

With the ANOVA results of the regression model analyzed, the significance value was

noted to be 0.0213. The stated level of significance had been stated as 5%, thus the model

was seen to be statistically significant as its significance value was below the level of

significance being 2.1%. This indicated that the various factors identified that affected the

financial sustainability of NGOs were statistically significant. The critical value of F at

5% significance was 3.18. Since F value calculated was greater than the F critical value

that is 6.220; this indicated that the overall model of regression was significant.

4.8.3 Regression Coefficient

Unstandardized

Coefficients

Standardized

Coefficients

Model B Std.

Error Beta t Sig.

1 Constant 1.309 1.343 1.624 0.358

Strategic Financial

Management 0.559 0.311 0.173 4.343 0.0277

Income

Diversification 0.621 0.244 0.147 3.459 0.0250

Strategic

Partnerships 0.732 0.157 0.211 3.533 0.0286

Own Income

Generation 0.786 0.323 0.068 3.543 0.020

Table 19: Regression Coefficient

Source: Author Computation 2012

44

With the different variables, a multiple regression analysis was performed in order to

analyze the relationship between the financial sustainability and the four variables

(Strategic Financial Management, Income Diversification, Strategic Partnerships and

Participation in Income Generating Activities). As per the SPSS analysis tabulated above,

the equation (Y = X1 + X2 +X3 +Xbecame:

Y = 1.309 + 0.621X1 + 0.732X2 + 0.559X3 + 0.786X4.

The regression equation instituted had been put together after taking into account all the

variables that were income diversification, strategic partnerships, strategic financial

management and participation in income generating activities. Constants at zero, noted a

financial sustainability of NGO at 1.308. The findings as presented above also elucidated

that taking all other independent variables as zero, a unit increase in income

diversification would increase financial sustainability of the NGO by 0.621; a unit

increase in strategic partnerships would increase the NGO’s financial sustainability by

0.732; a unit increase in strategic financial management would increase financial

sustainability of the NGO by 0.559 and a unit increase in own income generating

activities would increase the financial sustainability of the NGO by 0.786.

With the above analysis, it was stated that participation of Nongovernmental

organizations in own generating activities contributed to the maximum to its financial

sustainability by 0.786; followed by strategic partnerships by 0.732, that was

Nongovernmental organizations forming strategic partnerships had also seen to be

contributing to its financial sustainability to a great level. Most NGOs had seen to be

forming or wanting to be forming funding based partnerships which were seen to be

helping their organization in improving their financial sustainability. Nongovernmental

organizations attempting to diversify their income were also seen to be contributing to the

financial sustainability by a unit increase of 0.621. At the minimum with an increase of

0.559 of the financial sustainability of Nongovernmental organization was studied to be

strategic financial management being a strategy that affected the financial sustainability

of Nongovernmental organizations.

With a confidence interval of 95% and a significant value level to be at 5%, significance

of strategic financial management was calculated to be 2.77%, that of income

diversification was 2.5%, significance level of strategic partnerships was studied to be at

2.86% and that of own income generation was at 2.0%. It was noted that all significance

45

value calculated of all the independent variable had not exceeded 5%. This indicated that

all the variables were significant with p<0.05. With the above results, it was also stated

that participation in own income generating activities was seen to be the most significant

and strategic partnerships was seen to be least significant.

46

CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

This chapter focused on the summary and conclusions of the discussions of the input data

findings, and the conclusions and recommendations presented to it. The conclusions and

recommendations pulled through from the findings had been focused on the subject of the

study which was to analyze the effects of the financial strategies on the financial

sustainability of NGOs in Kenya. Specific reference was made to 75 NGOs randomly

selected from 26 sectors of NGOs around Nairobi, Kenya. This section was subdivided

into subsections with subsection 5.2 that gave out the summary of the findings of each

variable; subsection 5.3 had a description of the conclusion of the study conducted, and

subsections 5.4 presented recommendations and areas that needed further research. From

the analysis and the data therefore collected, discussions, conclusions and

recommendations have been made as follows.

5.2 SUMMARY

5.2.1 Income Diversification

On the study of how income diversification affected the financial sustainability of the

NGOs, the researcher came up with 11 drivers for income diversification out of which

only a few were studied to be important. These drivers included risk management, fueling

further of the NGO’s activities, mitigation of negative consequences of a sudden drop in

income, increasing long-term reliability of income stream, reducing the danger that a

withdrawal of funding forces the organization to close down and being able to fund

projects according to their priorities. According to study by Sharma (2000),

diversification of the different funding sources of the organization is critical so as to

improve the financial stability of NGO’s income streams. The important driers of income

diversification identified by the researcher were therefore seen to be in line with the study

made by Sharma (2000). With increasing economic crisis and financial distress in the

Kenya, aiming funds from international governments and their respective mutual aid

agencies might be more crucial than ever. That is tapping international funding as one of

the income diversification strategies in enhancing the financial sustainability of the NGOs

has provided brilliant opportunities for improving income streams of these organizations.

It was clear from the statistics that income diversification strategies that enhance the

financial sustainability of the NGOs mainly include, tapping international funding

47

streams, fundraising and development plan and corporate donor sourcing. Seipulnik

(2005) mentioned that NGOs had countered back with the same capitalist spirit with

brilliant planning and hard work which had in turn brought them success in the main

activities. The study findings resulted in line with this statement of Seipulnik (2005). The

NGOs were seen to be developing their fund-raising activities and tapping into new

corporate donor streams for better monetary support as well as holding one-time events in

aspect of improving their income streams.

5.2.2 Strategic Partnerships

Strategic Partnerships in the study as one of the independent variables was also seen to be

affecting the financial sustainability of NGOs to a great extent. The study deduced that

funding based strategic partnerships are more critical for NGOs and it is also one that

most NGOs prefer to work under. The study also inferred that most NGOs studied were

under funding based strategic partnerships noting the importance of forming strategic

partnerships with the aim of stabilizing financial status of the organization and those

NGOs that were under no strategic partnerships were also striving to form such

partnerships so as to improve their financial sustainability. These results fell in line with

the study by Donn (2011); he stated “Partnership forms the very basis of the Global Fund

model”. Partnerships between NGOs and other business entities were now seen to

becoming a central part of their financial development process. While NGOs are drawn

towards the notion of strategic partnerships, it is seen not only as an appearance of unity

that promotes financial aid, but it also promotes global development of the organization.

The study therefore concluded that the sum of results from forming partnerships is far

potentially greater than the sum of the parts.

5.2.3 Strategic Financial Management

The study inferred that strategic financial management affected the financial

sustainability of NGOs to a great extent. The drivers for strategic financial management

that the researcher had tapped on that mainly affected the financial sustainability of the

NGO to a great extent included strategic planning, financial analysis and plan

implementation. As per the study by Drysdal & Waddell (2000), financial management

process requires a momentous load to be placed on NGO’s financial sustainability.

Waddell (2000) stated that sound financial management necessitates good organizational

development, procedures and processes as well as management workable systems that can

respond to and assist in overcoming the financial constraints that may arise in an NGO.

48

Ahmed (2012) also stated that investing in financial resources collected by establishment

of trust funds in any NGO gives them a long-term reliability on their income from any

interest or both interest and principal.

5.2.4 Participation in Income Generating Activities

Participation of NGOs in their own income generating activities had also been seen to be

affecting the NGOs to a great extent. The researcher noticed that participating in business

activities, receiving trust or endowment funds and receiving public contribution were seen

to be affecting financial sustainability to a great extent. Income generation is a central

strategy used to respond to financial challenges and find alternatives to stabilize financial

status (World Bank, 2010). Participation in income generating activities intends to build

opportunities for the most appropriate use of financial resources among the NGOs with

the aim of becoming self-reliant and less depended on other income sources and to be

able to serve their intended community without restrictions. Contrary to that, as per the

theories quoted by Lean (2006) NGOs are required to work on more business like

operations, aiming to improve their financial status and place more practical views of

enterprise structure but without losing focus on their priority of serving the poor and

disadvantaged.

The four independent variables put together, that were income diversification, strategic

partnerships, strategic financial management and participation in income generating

activities were all seen to be positively correlated to the financial sustainability of NGOs

With placing constants at zero, it was noted that financial sustainability of NGO was

1.308. The findings elucidated after taking all other independent variables as zero, a unit

increase in income diversification would increase financial sustainability of the NGO by

0.621; a unit increase in strategic partnerships would increase the NGO’s financial

sustainability by 0.732; a unit increase in strategic financial management would increase

financial sustainability of the NGO by 0.559 and a unit increase in own income

generating activities would increase the financial sustainability of the NGO by 0.786.

With a confidence interval of 95% and a significant value level placed at 5%, significance

of strategic financial management was calculated to be 2.77%, that of income

diversification was at 2.5%, significance level of strategic partnerships was at 2.86% and

that of own income generation was calculated to be at 2.0%. It was seen that all

significance value calculated of all the independent variable had not exceeded 5%. This

49

indicated that all the variables were significant with p<0.05. With the above results, it was

also stated that participation in own income generating activities was seen to be the most

significant and strategic partnerships was the least significant.

5.3 CONCLUSION

The study concluded that strategic financial management affected the financial

sustainability of NGOs to a great extent. Poor financial management in specific categories

such as strategic planning, plan implementation and financial analysis would lead to poor

management of financial stability of NGOs. These would include poor capital structure

management, poor cash flow management and poor cost recovery strategies.

Taking note of some of the drivers of income diversification, such risk management,

fueling further growth of NGOs activities, reducing danger that a withdrawal of funding

forces the organization to close down, increasing long-term reliability of income streams

and reducing the impact of exchange rate fluctuations on income in local currency, these

were the drivers that were mainly noted to be critical that affected the financial

sustainability of NGOs to a great extent. The study therefore placed conclusion on the

variable income diversification to be also be of importance as it also enhanced the

financial sustainability of NGOs to a great extent. Income diversification strategies were

therefore seen to be of as much importance as that of strategic financial management as it

allowed the NGOs to expand their revenue streams which in turn stabilizes the

organization’s financial status.

Contrary to the above, the study further concluded that NGOs forming strategic

partnerships were benefited at a great extent in financial terms as well as in other

managerial benefits. The study therefore concluded that funding based partnerships

benefited the NGOs to a great extent in comparison to other strategic partnerships.

However, NGOs were also seen to be forming other trust based partnerships which was

also seen to be benefiting the organizations in stabilizing their financial status. This

therefore made strategic partnership as one of the financial strategies that NGOs adopt in

order to counter their financial challenges (Boue & Kjaer, 2010). Lowering transactional

cost through strategic partnerships also assisted the organization in reducing

interdependence and risks and thus improving efficiency.

Further ahead, the study also inferred that participation in income generating activities

such as business activities; trust and endowment funds and corporate alliances affect the

50

financial sustainability of the organization to a great extent. The study also deduced that

NGOs majorly depended on public contribution for stabilizing their financial status;

however the study concluded that NGOs participating in their own income generating

activities contributed majorly to most of the financial sustainability of the organization.

In conclusion, participation of NGOs in own generating activities contributed maximum

to its financial sustainability, followed by strategic partnerships, that is NGOs forming

strategic partnerships had also been seen to be contributing to its financial sustainability

to a great level. Most NGOs were seen to be forming or wanting to be forming funding

based partnerships which was studied to be helping their organization in improving their

financial sustainability. NGOs attempting to diversify their income were also seen to be

contributing to its financial sustainability to a great extent after importance was given to

strategic partnerships. At the minimum, the financial sustainability of NGOs was studied

to be affected by strategic financial management which was also studied as a strategy that

affected the financial sustainability of NGOs.

5.4 RECOMMENDATION

From the study findings, it was concluded that strategic financial management affects the

financial sustainability of NGOs to a great extent. The study therefore recommends

NGOs in order to remain financially sustainable; they should employ staffs that are

capable of planning strategically, implementing the plan and doing appropriate financial

analysis to manage and maintain good financial status in terms of cost recovery, cash

flows and capital structure.

Since income diversification was also seen as an importance and was studied to affect the

financial sustainability of NGOs to a great extent, the study also recommends all the

NGO’s management to improve and maintain their income sources from their usual

source that is donors. Employees capable of identifying risk factors and those who are

able to manage risk should be employed so as to be able to manage the cash flow. The

study also suggests NGOs to reduce their dependency on major donors, withdrawal of

which would force the organization to close down. Instead, the NGOs should try and

minimize cash flow decreasing risk by management of exchange rate fluctuation on

income in local currency and economic downturns through forecasts and to try and reduce

their impact on the organization’s income streams. This would allow the organization to

be able to decide on how to generate and spend the financial resources appropriately

51

without extreme regulations. The study suggests that NGOs financial management should

take into consideration appropriately forecasted fundraising and development plans; they

should also aim to tap international markets for funding partnerships and should also own

other side businesses so as to be able to generate the required financial resources in order

to accomplish their organizational goal of serving the poor and the disadvantaged.

In contrast to recommendations given in for income diversification and strategic financial

management, the study also recommends NGOs to take into consideration forming

strategic partnerships. Forming strategic partnerships give NGOs the liberty to serve the

organization’s objective with the help of the corporate partner and in turn provide the

partner with other agreeable benefit. This will give the organizations a wider pool to work

on in terms of financials and with less probability to strain their financial status. The

study suggests that funding based partnership is a better recommendation than any other

kind of strategic partnership since it was studied to be more effective.

Lastly the study recommends NGOs to take part in their own income generating

activities. Taking into consideration social entrepreneurship is recommended as it would

allow the organization to generate its own income and also give them the priority to spend

their financial resources without restrictions as well as allow them to be able to fund their

projects according to their priorities. Owning and managing their own businesses will

also give them a wider pool of their financial resources to be funded on. The study also

suggests NGOs to tap onto global markets for international funding streams so as to

widen their income stream.

5.5 AREAS OF FURTHER RESEARCH

The study recommends that further research should be done on effects of financial

strategies on the financial sustainability of small profit making organizations. There are

many researches done on the types of financial strategies that need to be adopted by

different organizations, the study therefore recommends further research to be conducted

on the factors leading to failures of implementation of financial strategies in both profit

and not-for-profit organizations.

52

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APPENDIX A: SURVEY SAMPLE

AGRICULTURE SECTOR HEALTH SECTOR Afrika Neema Foundation Action Now Kenya Community Progress Empowerment Programme

African Foundation For Community Development

Dorcas Aid International - Kenya Aids Healthcare Foundation, Kenya CHILDREN SECTOR HIV – AIDS SECTOR African Foundation For Civil Society Organization

Action Now Kenya

Community Based Development Services Active Association For Community Development

Embakasi Community Development Organization

Africa Community Development Organization

CULTURE SECTOR INFORMATION SECTOR Inter - Cultural Peace Foundation Initiatives For Development Of East African

Region International Council Of African Museums Institute For African Development International Development And Peace Organization

Mission Of Hope International

DISABILITY SECTOR INFOSECTOR SECTOR Africa Community Development Organization Africa Solidarity Fund Centre For Research And Development African Partners In Social Development Eliza Rehabilitation Programmes International Afro Vision Foundation EDUCATION SECTOR MICRO-FINANCE SECTOR Academy For Educational Development - Kenya

Bread For Children-Kenya

Africa Muslims Agency – Kenya International Prime Services Organization Call Africa Metra Micro Finance Kenya ENVIRONMENT SECTOR MULTI-SECTORAL SECTOR Active Association For Community Development

Center For Regeneration And Enpowerment Of Africans Through Africans

African Centre For Rights And Governance Mfano Community Development Strategies Dream Builders Initiative Programme GENDER SECTOR PEACE BUILDING SECTOR Association Of African Women For Research And Development

Africa Initiative Programme

Centre For Health, Advocacy, Gender And Education Initiative

Change Agents For Peace International

Development Knowledge Link-Africa Saferworld (Africa) Equality Now

68

GOVERNANCE SECTOR POPULATION AND REPRODUCTIVE HEALTH SECTOR

Africa Peace Forum Afriafya Centre For Justice And Crimes Against Humanity

Africa Solutions

Expert Foundation Centre For Health And Development Research (CHDR)

REFUGEES SECTOR WILDLIFE SECTOR Isukha Heritage Organisation Kivuli Community Youth Organization Peace Building, Healing And Reconcilliation Programme

World Vision Kenya RELIEF SECTOR YOUTH SECTOR Africa Rebuilding Foundation Center For The Study And Practice Of Director

Democracy Amazing Grace International Inc-Kenya Chapter

Cheryl Williams Foundation

Community Organization And Training For Risk Reduction

Compassionate Social Care Organization

RELIGION SECTOR WELFARE SECTOR Bible League International- Kenya Arise And Help International International Bible Society East Africa Barhostess Empowerment & Support

Programme Centre For Community Law And Rural

Development RESEARCH SECTOR WATER AND SANITATION SECTOR Centre For Peace And Strategic Policy Reseach Boma Welfare Organization Institute For Human Security Brook Of Cherith Organization Internal Displacement Policy And Advocacy Centre

Centre For Livelihood Opportunities Unlimited And Technologies

ROAD SAFETY SECTOR SPORTS SECTOR African Development & Emergency Organization

Carolina For Kibera Organization

Catholic Organization For Relief And Development

Gallamoro Network

Youth Initiatives-Kenya Little Sports Organization

69

APPENDIX B: COVER LETTER

DIVECHA, PRIYANKA LALLUBHAI,

UNITED STATES INTERNATIONAL UNIVERSITY,

P.O.BOX 70730-00400,

NAIROBI.

Email: [email protected]

Dear Respondent,

I am carrying out a research on the “Effects of Financial Strategies on the Financial

Sustainability of Nongovernmental Organizations in Kenya.” This is in partial fulfillment

of the requirement of Masters in Business Administration degree program at United

States International University.

The purpose of this study is to examine the relationship between the identified financial

strategies and the financial status of NGOs in Kenya and the effects it might have on the

financial sustainability of these NGOs. The results of this study will contribute to the

wide understanding of how the identified factors can contribute in improving the financial

stress of NGOs in Kenya.

I kindly request you to assist me in answering the following questionnaire that would help

me in analyzing this study. This is an academic research and confidentiality is strictly

emphasized, and therefore your name will not appear anywhere in the report. Kindly

spare time to complete the questionnaire attached.

Thank you in advance.

Yours Sincerely,

Priyanka Divecha.

70

APPENDIX C: RESEARCH QUESTIONNAIRE

This study is a requirement for the partial fulfillment of the Master of Business

Administration (MBA) program at the United States International University Africa

(USIU-A). The purpose of this study is to examine the “EFFECTS OF FINANCIAL

STRATEGIES ON THE FINANCIAL SUSTAINABILITY OF

NONGOVERNMENTAL ORGANIZATIONS IN KENYA”

The findings of this study will provide the management of NGOs with information that

can be used to stabilize the financial distress in NGOs. This is an academic exercise and

all information collected from respondents will be treated with strict confidentiality.

SECTION A: Background Information

1. Your gender: Male [ ] Female [ ]

2. You age bracket (Tick whichever appropriate)

Below 24 [ ] 25 – 30 years [ ]

31 – 34 years [ ] 35 – 40 years [ ]

41 – 44 years [ ] 45 – 50 years [ ]

Over- 51 years [ ]

3. What is your highest level of education? (Tick as applicable)

Primary Certificate [ ] Secondary Certificate [ ]

Diploma/Certificate [ ] Bachelors’ degree [ ]

Postgraduate degree [ ] Others [ ]

If Others, Specify ……………………………………………………………..

4. Working experience in the Organization

Below 1 years [ ] 1 – 2 Years [ ]

2 – 4 years [ ] 5 Years and above [ ]

5. What is the trend of the following measures of sustainability for your NGO in the

last five years?

Greatly

Improving

Improving Stable Deteriorating Greatly

Deteriorating

Cash Flows

Cost

Recovery

Capital

Structure

71

SECTION B: Research Based Information

STRATEGIC FINANCIAL MANAGEMENT

6. To what extent does strategic financial management affect the financial

sustainability of your NGO?

Very Greatly [ ] Great extent [ ]

Moderate extent [ ] Little extent [ ]

Not at all [ ]

7. To what extent do the following affect financial sustainability of your NGO?

Financial

Management

Very great

extent

Great

extent

Moderate

extent

Little

extent

Not at all

Strategic

Planning

Financial

analysis

Plan

implementation

Asset selection

Stock selection

Investment

monitoring

INCOME DIVERSIFICATION AND FINANCIAL SUSTAINABILITY

8. How important are the following driver for income diversification in your NGO?

Use a scale of 1-5, where 1 = very important and 5 = unimportant

Income Diversification 1 2 3 4 5

Risk Management

Mitigation of negative consequences of a sudden

drop in income

Fueling further growth of the NGO’s activities

72

Gaining more flexibility in their internal

financial management

Reducing the danger that a withdrawal of

funding forces the organization to close down

Increasing the longer-term reliability of the

income stream

Reducing the impact of exchange rate fluctuation

on income in local currency

Reducing the impact of economic downturns

Being able to decide how to generate and spend

financial resources without restrictions

Being able to fund projects according to your

priorities

Being able to say no to some sources of income

because they do not fit in the organization’s

values

9. How effective are the following income diversification strategies in enhancing

financial sustainability at your organization? Use scale of 1 – 5, where 1 = Very

effective and 5 = ineffective

Income Diversification 1 2 3 4 5

Social entrepreneurship

Fundraising and development plan

Tapping international funding streams

Corporate donors sourcing

Owning and managing business

73

STRATEGIC PARTNERSHIPS

10. Is your organization in any strategic partnerships with any businesses?

Yes [ ] No [ ]

11. What kind of strategic partnership is your organization involved in?

Funding based partnership [ ] Capacity based partnership [ ]

Trust based partnership [ ] Any other strategic partnership [ ]

If other, Specify……………………………………………..

12. To what extent do you think forming strategic partnerships will affect the financial

sustainability of your organization?

Very great extent [ ] Great [ ]

Moderate extent [ ] Little extent [ ]

Not at all [ ]

PARTICIPATION IN INCOME GENERATING ACTIVITIES

13. To what extent does participation in income generating activities affect the

financial sustainability of your organization?

Very great extent [ ] Great extent [ ]

Moderate extent [ ] Little extent [ ]

Not at all [ ]

14. To what extent do the following affect the financial sustainability of your NGO?

Income Generating

Activities

Very

great

extent

Great

extent

Moderate

extent

Little

extent

Not at

all

Social entrepreneurship

Unrestricted income

generating activities

Business activities

Trust or endowment fund

Public contributions

Corporate alliances

THANK YOU