Effect of source specific grants on the financial sustainability of nongovernmental organizations in Kenya

Abstract

Many NGOs across the globe have been facing financial instability, which has raised concerns about their long-term sustainability. As a result, many NGOs are actively seeking to diversify their revenue sources to sustain their programs and operations such as donor grants, fee-based services, revenue from product sales and services and revolving funds interest income. Thus, this study sought to examine the effect of source specific grants on financial sustainability of NGOs in Kenya. The study was guided by Resource-Based View, Institutional Theory and Resource Dependency Theory and these theories hold the view that there is a linkage between revenue diversification to financial sustainability of organizations. Descriptive research design was adopted and the target population of 511 NGOs operating in Nairobi County was used. The study used stratified sampling to select the NGOs dealing with poverty alleviation and a sample size of 52 was applied. The study administered questionnaires to 52 financial managers from 52 NGOs selected. Reliability tests were taken into account and the results showed that Cronchbach value of the research tool was appropriate as it indicated 0.713. Both descriptive and inferential statistics were used to analyze data. Results revealed that grants had a positive effect on the financial sustainability of NGOs in Nairobi County. The findings also revealed that an increase in source specific grants led to an increase in financial sustainability of NGOs while a decrease of the same was related to lower financial sustainability of NGOs. Based on the findings, the study concluded that grants influenced financial sustainability, therefore, NGOs were more likely to be sustainable when the sources of revenue were diversified. The study recommends that NGOs need to put in place the appropriate management structure to implement their financial strategies to expand their base of grants which will promote their financial sustainability. Lastly, further research is needed to determine whether similar results would be realized in public institutions such as universities who are recently facing financial crisis.