Financial Management Practices and Financial Performance of Non-Governmental Organizations in Kenya. A Case of Lower Eastern Counties in Kenya.

Authors

  • Hillary Mutheu Scholar, Jomo Kenyatta University of Agriculture and Technology, Kenya
  • Dr. Cynthia Stella Waga Senior Lecturer: Jomo Kenyatta University of Agriculture and Technology, Kenya

DOI:

https://doi.org/10.61108/ijsshr.v2i3.146

Keywords:

Financial Management Practices, Budget Control, Financial Monitoring, Income Diversification, Cash Management, Financial Performance

Abstract

Non-governmental organizations (NGOs) play a crucial role in socio-economic development, particularly in the Lower Eastern Counties of Kenya. This study examines the relationship between financial management practices and the financial performance of NGOs in this region, with a focus on identifying key practices that influence their sustainability and effectiveness. The specific objectives included investigating the influence of budget control, financial monitoring, income diversification, and cash management on the Financial Performance of NGOs in Kenya. The goal-setting theory, the modern portfolio theory, and the trade-off theory guided the study. A descriptive research design was used for this study. The target population comprised 132 NGOs in Kenya's Machakos, Kitui, and Makueni counties. Since the population is small, a census was conducted, and all 132 critical decision-makers involved in financial matters were included in the sample. Primary data was collected through the administration of questionnaires. The study conducted correlation and regression analyses to understand the relationships between financial practices and Financial Performance among NGOs in Kenya’s lower eastern counties. It found significant positive correlations between budget control, financial monitoring, income diversification, cash management, and Financial Performance. Effective budget control and financial monitoring practices contribute to stability and informed decision-making, while income diversification and sound cash management enhance resilience by reducing reliance on single revenue sources and navigating economic uncertainties. Regression analysis further supported these findings, showing that these practices collectively explain a notable proportion of Financial Performance variability. This emphasizes the critical role of diverse financial practices in ensuring the longevity and effectiveness of NGOs in Kenya. The study recommends enhancing financial management practices and sustainability in Kenyan NGOs through refined budgeting processes, robust financial monitoring, diversified funding sources, and improved cash management. It emphasizes aligning budgets with strategic goals, integrating financial monitoring into decision-making, and seeking alternative revenue streams beyond grants. Additionally, fostering transparency, adhering to financial standards, and investing in training programs are recommended to ensure adequate cash management and long-term Financial Performance within NGOs, providing a roadmap for positive change.

Downloads

Download data is not yet available.

References

. Abioro, M. (2013). The impact of cash management on the performance of manufacturing companies in Nigeria. Uncertain Supply Chain Management, 1, 177–192.

. Adrian, T., Covitz, D. M., & Liang, N. (2013). Financial Stability Monitoring. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.2262737

. Ali, A. A. (2012). Factors influencing sustainable funding of non-governmental organizations in Kenya: A case study of Sisters Maternity Home (SIMANO) in Garissa (MBA Master’s Thesis). Nairobi University, Kenya.

. Anand, B. N., & Khanna, T. (2000). Do Firms Learn to Create Value? The Case of Alliances. Strategic Management Journal, 21, 295-315.

. Anthony, R. N., & Govindarajan, V. (2007). Management Control Systems. McGraw-Hill.

. Belova, S. (2021). Financial Monitoring in the Budget Sphere: Essence and Directions of Improvement. Financial Monitoring and Sustainability Manual.

. Beresford, P., & Katzenbach, N. (2012). Driving sustainable Financial Performance in NGOs. McKinsey Quarterly, 4, 98–105.

. Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.

. Brigham, E. F., & Ehrhardt, M. C. (2017). Financial Management: Theory & Practice 15th Edition.

. Brinkerhoff, D. W., & Brinkerhoff, J. M. (2011). Public–private partnerships: Perspectives on purposes, publicness, and good governance. Public Administration and Development, 3(1), 2–14.

. Bruns, W. J., & Waterhouse, J. H. (1975). Budgetary Control and Organization Structure. Journal of Accounting Research, 13(2), 177. https://doi.org/10.2307/2490360

. Cotei, C., Farhat, J., & Abugri, B. A. (2011). Testing trade‐off and pecking order models of capital structure: does legal system matter? Managerial Finance, 37(8), 715–735.

. Creswell, J. W., & Creswell, J. D. (2017). Research Design Qualitative, Quantitative, and Mixed Methods Approaches. (4th ed.). Sage, Newbury Park.

. Cuadrado-Ballesteros, B., & Marco, B. (2022). Budget transparency and Financial Performance. Journal of Public Budgeting, Accounting & Financial Management, 34(6), 210–234. https://doi.org/https://doi.org/10.1108/JPBAFM-02-2022-0025

. Druly, C. (2013). Management and Cost Accounting (1st ed.). Peter Atrill.

. Duho, K. C. T., Duho, D. M., & Forson, J. A. (2021). Impact of income diversification strategy on credit risk and market risk among microfinance institutions. Journal of Economic and Administrative Sciences, 39(2), 523–546. https://doi.org/10.1108/JEAS-09-2020-0166

. Dzansi, J. (2017). The Role of Financial Management Practices in Enhancing Financial Performance of NGOs in Ghana. Journal of Management Sciences and Technology, 2(1), 45–57.

. Eduard, Y. (2022). Financial Monitoring as a tool of ensuring the financial security of the enterprise. Market Infrastructure.

. Ellis, F. (1998). Household strategies and rural livelihood diversification. The Journal of Development Studies, 35(1), 1–38.

. Faque, M. (2022). Cash management strategies and firm Financial Performance: A comprehensive literature review. Semantic Scholar, 2(3), 143–155.

. Githaiga, P. N. (2021). Revenue diversification and Financial Performance of microfinance institutions. Asian Journal of Accounting Research, 7(1), 31–43.

. Gitman, L. J. (2012). Principles of Managerial Finance, 13th Edition.

. Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (5th ed.). McGraw-Hill Education.

. Hair, J. F., Black, W. C., Babin, B. J., Anderson, R. E., & Tatham, R. L. (2006). Multivariate Data Analysis (6th ed.). Pearson Prentice Hall.

. Harbinska-Rudenko, A., Danchuk, І., & Dubrova, A. (2023). Legal regulation of budget control as a type of management activity in the budget. Uzhhorod National University Herald. Series: Law.

. Harvey, A. C., & Collier, P. (1977). Setting for functional misspecification in regression analysis. Journal of Econometrics, 6(1), 103–119.

. Hrynchyshyn, I. (2021). Budget control in the context of formation and implementation of budget policy of local government bodies. Institute of Regional Research of the National Academy of Sciences of Ukraine.

. Isaac, L., Lawal, M., & Theresa, O. (2015). A Systematic Review of Budgeting and Budgetary Control in Government Owned Organizations. Journal of Accounting & Marketing, 4(3), 223–247.

. Jiang, H., & Han, L. (2018). Does Income Diversification Benefit the Sustainable Development of Chinese Listed Banks? Analysis Based on Entropy and the Herfindahl–Hirschman Index. Entropy 2018, Vol. 20, Page 255, 20(4), 255. https://doi.org/10.3390/E20040255

. Kaur, N., Srivatsav, S., Jadiyappa, N., & Kaur, P. (2018). Income Diversification and Bank Stability: Evidence from India. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.3340806

. Keating, E. K., & Frumkin, P. (2003). Reengineering the budgeting process in nonprofit organizations. Nonprofit Management and Leadership, 13(2), 139–157.

. Khan, M. U., Iftikhar, S., Iqbal, M. Z., & Sherin, S. (2018). Empirical studies omit reporting necessary details: A systematic literature review of reporting quality in model-based testing. Computer Standards & Interfaces, 55, 156–170. https://doi.org/10.1016/J.CSI.2017.08.002

. Kiamba, P., & Chintalapati, P. (2019). Sustainable wash systems learning partnership understanding coordination in kitui county’s water sector: an analysis of stakeholder interactions and perspectives about the sustainable wash systems learning Partnership: The Sustainable WASH Systems Learning. www.globalwaters.org/SWS,

. Kim, J. (2019). Multicollinearity and misleading statistical results. Korean Journal of Anesthesiology, 72(6), 558-569. https://doi.org/10.4097/kja.19087

. Kinyua, K. M., & Muchina, S. M. (2016). Impact of Financial Management Practices on the Sustainability of NGOs in Kenya. Kirinyaga University.

. Kornacker, J., Rouven, T., & Ander, K. (2017). Rejection, reproduction and reshaping – a field study on global budget control practices in multinational companies. Qualitative Research in Accounting & Management, 15(1), 24–38.

. Kushnir, N., Los, Z., Shpak, V., Malanchuk, L., & Tsaruk, D. (2023). Implementation of the financial monitoring system into the Ukrainian enterprises activity based on the sustainable economic development and green financing concept. IOP Conference Series: Earth and Environmental Science, 1126(1), 012004. https://doi.org/10.1088/1755-1315/1126/1/012004

. Kwadade-Cudjoe, F. (2020). Budgeting and Budgetary Control are time consuming tasks for any organization: Archives of Business Research, 8(8), 233–277.

. Lee, S. (2018). Growth, profits and r&d investment. Economic Research-Ekonomska Istraživanja, 31(1), 607-625. https://doi.org/10.1080/1331677x.2018.1432380

. Lele, U., & Siaw, I. (2018). Measuring Financial Performance of non-governmental organizations (NGOs) in Ghana. Financial Accountability & Management, 34(1), 93–112.

. Locke, E. A., & Latham, G. P. (1990). A Theory of Goal Setting and Task Performance. The Academy of Management Review, 16(2), 480–483.

. Lu, J., Shon, J., & Zhang, P. (2019). Understanding the dissolution of nonprofit organizations: a financial management perspective. Nonprofit and Voluntary Sector Quarterly, 49(1), 29-52. https://doi.org/10.1177/0899764019872006

. Majumdar, S. K., & Marcus, A. A. (2001). Rules versus Discretion: The Productivity Consequences of Flexible Regulation. The Academy of Management Journal, 44(1), 170–179.

. Makori, D. M. (2018). Financial Management Practices and Sustainability of Non-Governmental Organizations in Kenya. International Academic Journal of Economics and Finance, 3(2), 160–177.

. Markowitz, H. M. (1952). Portfolio Selection. Journal of Finance, 7(1), 77–91.

. Masa, R. D., & Horton, K. E. (2018). Measuring Financial Performance in nonprofit organizations. Journal of Public and Nonprofit Affairs, 4(3), 297–316.

. Matsoso, M. L., Nyathi, M., & Nakpodia, F. A. (2021). An assessment of budgeting and budgetary controls among small and medium-sized enterprises: evidence from a developing economy. Journal of Accounting in Emerging Economies, 11(4), 552–577. https://doi.org/https://doi.org/10.1108/JAEE-04-2020-0082

. Milelu, E. (2018). Factors Affecting Financial Performance for Non-Governmental Organizations in Nairobi, Kenya. Unpublished MBA Project, USIU.

. Miriti, N. S., & Karithi, N. M. (2020). Factors Influencing Sustainability of Non- Governmental Organizations: A Study for Nairobi, Kenya. Journal of International Business, 7(1), 145–163.

. Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261–297.

. Mohamed, M. I., & Ismail, M. (2019). Financial Management Practices and Sustainability of NGOs in Sudan. Management Research Review, 2(1), 37–58.

. Morduch, J. (1999). Between the state and the market: Can informal insurance patch the safety net? The World Bank Research Observer, 14(2), 187–207.

. Mungal, A. (2015). The impact of cash management on profitability and sustainability of small retail businesses in the Tongaat area, KwaZulu-Natal. Semantic Scholar.

. Muthama, R. A. (2016). Effects of Cash Management Practices on Operational Performance of Selected Public Hospitals in Kisii County, Kenya. European Journal of Business and Management, 8(226–236).

. Neubert, M., & Dyck, B. (2016). Developing sustainable management theory: goal-setting theory based in virtue. Management Decision, 54(2), 304–320.

. Nguyen, N. T., & Taylor, J. W. (2003). The Influence of Goal Setting on Workers’ Motivation and Performance in a Financial Institution. Financial Management: Theory and Practice.

. Nyangau, D. (2020). Determinants of Financial Performance of civil society organizations in Kisii and Nyamira Counties. Unpublished Thesis of Kenyatta University.

. O’Donnell, M., Dev, A. S., Antonoplis, S., & Baum., S. M. (2021). Empirical audit and review and an assessment of evidentiary value in research on the psychological consequences of scarcity. Proceedings of the National Academy of Sciences.

. Osei-Kuffour, F., & Peprah, W. K. (2020). Correlate of Income Diversification and Financial Performance of Private Tertiary Institutions as Moderated by Institutional Profile. International Journal of Academic Research in Accounting, Finance and Management Sciences, 10(3). https://doi.org/10.6007/IJARAFMS/V10-I3/7657

. Ouédraogo, A. L. (2020). Financial Performance of NGOs in West Africa: Challenges and Strategies. Journal of International Business, 7(1), 145–156.

. Renz, D. O. (2010). The Jossey-Bass Handbook of Nonprofit Leadership and Management (3rd, Ed.).

. Sadiq, M., & Matlay, H. (2016). Financial management practices in nonprofit organizations: Evidence from the microfinance sector. Voluntas. International Journal of Voluntary and Nonprofit Organizations, 27(2), 700–721.

. Salamon, L. M., & Anheier, H. K. (1997). Defining the nonprofit sector: A cross-national analysis. Manchester University Press.

. Sampaio, R., & Mancini, M. C. (2007). Systematic review studies: a guide for careful synthesis of the scientific evidence Introduction. Brazilian Journal of Physical Therapy.

. Schmidt, A. and Finan, C. (2018). Linear regression and the normality assumption. Journal of Clinical Epidemiology, 98, 146-151. https://doi.org/10.1016/j.jclinepi.2017.12.006

. Senyo, D. B., Olivia, A.-T., & Musah, A. (2015). Income Diversification and Financial Stability of Banks in Ghana. Financial Monitoring and Sustainability Manual.

. Shah, S., Sukmana, R., & Fianto, B. (2021). Stage-i shariah compliant Macaulay’s duration model testing. Journal of Islamic Accounting and Business Research, 12(7), 941-964. https://doi.org/10.1108/jiabr-05-2020-0158

. Shapiro, S. S., & Wilk, M. B. (1965). An analysis of variance test for normality (complete samples). Biometrika, 52(3/4), 591–611.

. Shuib, N., Said, J., & Atan, R. (2013). The Influence of Financial Management Practices, Board Effectiveness and Accountability Towards Performance: Empirical Test of Non-Profit Organizations. Asia-Pacific Management Accounting Journal, 8(1), 44–65.

. Surnina, K., & Denenberg, Yu. M. (2018). Financial Monitoring as the Key Element of the Mechanism for Ensuring Economic Security. Financial Management: Theory and Practice.

. Sylvie, N., Mulyungi, D., & Shukla, D. (2018). Effect of Cash Management Practices on Financial Performance of Small Medium Enterprises in Rwanda: Case Study of SMES in Kicukiro District. Semantic Scholar.

. Trochim, W. M. K., & Donnelly, J. P. (2006). Knowledge Base - Research Methods Knowledge Base.

. Turner, S., Forbes, A., Karahalios, A., Taljaard, M., & McKenzie, J. (2021). Evaluation of statistical methods used in the analysis of interrupted time series studies: a simulation study. BMC Medical Research Methodology, 21(1). https://doi.org/10.1186/s12874-021-01364-0

. Uwonda, G., & Okello, N. (2015). Cash Flow Management and Sustainability of Small Medium Enterprises (SMEs) in Northern Uganda. International Journal of Social Science and Economics Invention, 2(3), 153–173.

. Vnukova, N., & Ostapchuk, S. (2023). Financial Monitoring of the Accounting Services Sector According to International Standards: A New Challenge for the Accountant. JEL Classification.

. Young, D. R. (1996). Financial management for nonprofit organizations: Policies and practices. Wiley.

. Zhikang, X., Liu, X., Najam, H., Fu, Q., Abbas, J., Comite, U., Cismas, L. M., & Miculescu, A. (2022). Achieving Financial Performance through Revenue Diversification: A Green Pathway for Financial Institutions in Asia. New Trends in Corporate Finance for Sustainability.

. Zolotareva, A. B. (2021). How to improve the efficiency of budget control? Russian Economic Journal, 3(4), 134–148

Vol. 2 No. 3 (2024) of the International Journal of Social Science and Humanities Research (IJSSHR)

Downloads

Published

2024-12-28

How to Cite

Mutheu, H., & Waga , C. S. (2024). Financial Management Practices and Financial Performance of Non-Governmental Organizations in Kenya. A Case of Lower Eastern Counties in Kenya. International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p), 2(3), 339–360. https://doi.org/10.61108/ijsshr.v2i3.146

Issue

Vol. 2 No. 3 (2024): International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p)

Section

Articles

License

Copyright (c) 2024 International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

The International Journal of Social Science and Humanities Research (IJSSHR) adopts the Creative Commons Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) license terms for all published articles. This license governs the rights and permissions associated with the use, distribution, and reproduction of the published content, ensuring a balance between authors' intellectual property rights and the wider dissemination of knowledge.

Under the CC BY-NC 4.0 license, the following terms apply:

  1. Attribution (BY): Users are required to give appropriate credit to the original authors and provide a link to the original work. Proper attribution acknowledges the intellectual contribution of the authors and allows others to trace the research back to its source.

  2. NonCommercial (NC): The license prohibits commercial use of the published material. Users may not exploit the work for commercial purposes without obtaining explicit permission from the copyright holder. Non-commercial use includes activities such as selling, licensing, or monetizing the content.

  3. Adaptation: The CC BY-NC 4.0 license allows users to remix, transform, or build upon the original work, but only for non-commercial purposes. Adaptations or derivative works based on the published material must also be shared under the same license terms, giving proper attribution to the original authors.

The CC BY-NC 4.0 license ensures that the published research in the International Journal of Social Science and Humanities Research remains accessible to a wide audience while respecting the intellectual property rights of the authors. It encourages the sharing, dissemination, and collaborative use of knowledge within the academic community, fostering innovation and furthering the advancement of social sciences and humanities research.

Authors publishing their work in IJSSHR grant the journal the right to publish and distribute their articles under the CC BY-NC 4.0 license. This license facilitates the unrestricted availability of the research, allowing readers, educators, and researchers to access, cite, and build upon the published content, as long as they comply with the license terms.

By adopting the CC BY-NC 4.0 license, IJSSHR promotes open access principles and encourages the responsible use of scholarly work. It empowers researchers to disseminate their findings widely and fosters collaboration, ensuring that knowledge generated in the field of social sciences and humanities can have a broader societal impact.

Crossref
Scopus
Google Scholar
Europe PMC