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

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.