Effect of Diversification of Revenue Streams on the Financial Sustainability of Non-Governmental Organizations in Kenya.

Abstract

The financial sustainability of NGOs is crucial for their continued impact and operations. With decreased donor funding there is need for NGOs to expand their involvement in diversifying their revenue streams. This study mainly sought to determine the effect of diversification of revenue on the financial sustainability of NGOs in Kenya. Specifically, the study investigated the effect of source specific grants, evaluated the role of fee-based services, investigated the extent to which revolving funds interest income affects financial sustainability and assessed the effect of revenue from sale of products and services on financial sustainability of NGOs in Kenya. Three theories guided the study and they included; Resource-Based View, Institutional Theory and Resource Dependency Theory. The study applied descriptive research design and a target population of 511 NGOs based in Nairobi County. Using stratified sampling technique, NGOs dealing with poverty alleviation were selected where a sample size of 52 was used. Questionnaires which were the main data collection tool were issued to 52 financial managers from the 52 NGOs. In addition, the study carried out reliability tests and the Cronchbach value was found to be 0.713, thus, the instrument was considered appropriate. Both descriptive and inferential statistics were used to present the analysed data. Results revealed that grants, fee based services, Interest Income from revolving funds and revenue from sale of products and services positively influenced financial sustainability of NGOs. The findings revealed that an increase in any of these revenue streams (Source Specific Grants, Fee Based Services, Interest Income from Revolving Funds and Revenues from Sale of products and services) resulted to increase in financial sustainability of NGOs while a decrease of the same was related to lower financial sustainability of NGOs. The conclusion of the study showed that all revenue streams under study affected financial sustainability, therefore, NGOs were more likely to be sustainable when there was income diversity. This study recommends that NGOs should develop appropriate governance structures to implement their financial strategies to increase their revenues and promote policies that facilitate self-financing and fundraising in order to achieve high financial performance. Finally, the study suggests that further research is needed to determine whether similar results can be achieved by other NGOs based outside Nairobi and public institutions such as universities, that have been recently reported to face financial challenges