Open AccessExternal Financing Fluctuations and Financial Sustainability of Non-Governmental Organizations in Kakamega County, Kenya
View Full Article|
Download PDFAbstract:
The financial sustainability of non-governmental organizations (NGOs) is potentially vulnerable to fluctuations in external financing, particularly in resource-constrained settings where continued access to funding may be uncertain. This study examined the relationship between external financing fluctuations and the financial sustainability of NGOs in Kakamega County, Kenya, drawing on Resource Dependence Theory (RDT). An explanatory research design was adopted, and a census approach was used to target all 69 registered NGOs in the county, of which 67 participated, yielding a response rate of 97.1%. Primary data were collected using semi-structured questionnaires and analyzed using Pearson’s correlation and linear regression in the Statistical Package for the Social Sciences (SPSS). A positive and statistically significant correlation was reported between external financing fluctuations and financial sustainability (r = 0.619, p < 0.05). Regression analysis also indicated a positive association, with a reported unstandardized regression coefficient of B = 0.321. The regression model was reported to yield R = 0.836, R² = 0.699 and an adjusted R² = 0.680, suggesting that a substantial proportion of the observed variation in financial sustainability was accounted for by the predictors included in the model. These findings suggest that external financing dynamics are relevant to the financial sustainability of NGOs in Kakamega County. However, the direction and magnitude of this relationship should be interpreted in accordance with the operational definition of financing fluctuations and the specification of the regression model. The findings provide a basis for further investigation into how changes in external funding affect the financial resilience of NGOs and underscore the importance of examining financing patterns when assessing organizational sustainability.
1. Introduction
The financial sustainability of non-governmental organizations (NGOs) is an important concern, particularly given their reliance on external financing and the potential uncertainty associated with fluctuations in funding volumes. NGOs play a critical role in complementing government efforts by providing essential services in education, healthcare, poverty alleviation, and community development. However, their dependence on external financing has exposed them to significant financial risks arising from unpredictable changes in funding levels (World Bank, 2020). External financing volume fluctuations, reflected in increases or decreases in donor funding allocations, may disrupt financial planning, budgeting, and the continuity of NGO operations. Such fluctuations can also create challenges for project implementation, service delivery, and staffing, particularly when funding declines.
Financial sustainability refers to the ability of an NGO to mobilize, manage, and utilize financial resources effectively to sustain its operations and achieve its long-term objectives without excessive dependence on unstable external funding sources. According to Ndungu & Namada (2026), many NGOs operating in Kakamega County rely predominantly on external financing to support programmes in education, healthcare, and poverty reduction. However, fluctuations in the volume of external financing have made financial planning increasingly difficult, thereby affecting programme continuity and organizational performance. Singh & Chudasama (2020) observed that inconsistent funding volumes lead to budgeting constraints, interruptions in project implementation, challenges in retaining qualified personnel, and difficulties in meeting operational expenses. Similarly, the United Nations Development Programme (2020) estimates that approximately 88 percent of NGO funding originates from external sources, making these organizations highly vulnerable to reductions or inconsistencies in funding volumes.
External financing volume fluctuations refer to variations in the amount of funding received from external donors over time. Such fluctuations are influenced by changes in donor priorities, global economic conditions, competing humanitarian demands, and shifts in development policies. According to Bridgespan Group (2024), instability in external financing limits organizational planning, disrupts programme implementation, and weakens financial stability. Alregab (2026). further argue that dependence on unstable external financing restricts long-term strategic planning and increases financial uncertainty. Similarly, Carroll & Stater (2009) found that inconsistent funding volumes reduce the ability of nonprofit organizations to build the financial reserves necessary for sustainability.
In Sub-Saharan Africa, NGOs remain central to poverty alleviation, humanitarian response, and service delivery. However, the region’s NGO sector depends predominantly on external financing, exposing organizations to fluctuations in funding volumes and other financing uncertainties (Brass et al., 2018). Green et al. (2021) found that declining or inconsistent donor funding significantly increases financial vulnerability among NGOs across Sub-Saharan Africa. Similarly, Kim & Li (2023) reported that changing donor priorities and declining international aid commitments have intensified financial uncertainty for many organizations. In Kenya, NGOs complement government efforts in delivering essential services in sectors such as health, education, governance, agriculture, water, and sanitation. According to the NGOs Co-ordination Board (2023), external financing to the NGO sector increased from KES 175.9 billion in 2021/22 to KES 196 billion in 2022/23. Nevertheless, more than 86% of NGO funding originates from external sources, making organizations highly susceptible to fluctuations in funding volumes (Kumi, 2022). Kachumi et al. (2025) argue that reliance on external financing exposes NGOs to unstable funding levels that undermine financial planning, operational continuity, and organizational sustainability.
NGOs in Kakamega County contribute to local development through various community-based programmes, including initiatives aimed at improving social welfare and livelihoods. These organizations play a vital role in supporting vulnerable populations, particularly in rural and peri-urban communities. However, many depend almost entirely on external financing to implement their activities. According to Dunkel et al. (2017), NGOs in Kakamega face persistent challenges arising from dependence on donor funding, limited local resource mobilization, and inadequate government financial support. Consequently, fluctuations in external financing volumes may require organizations to scale down programmes, delay project implementation, reduce staffing levels, and limit service coverage.
The study therefore seeks to examine the effect of external financing volume fluctuations on the financial sustainability of NGOs in Kakamega County. Understanding this relationship will contribute to the development of effective financial management strategies that enhance organizational resilience, strengthen financial sustainability, and reduce vulnerability arising from fluctuating external financing. The findings are expected to provide valuable insights for NGO managers, policymakers, donors, and other stakeholders seeking to improve the long-term sustainability of development organizations in Kenya.
There is no statistically significant effect of fluctuations in external financing volumes on financial sustainability of NGOs in Kakamega County.
2. Review of Related Literature
The study is anchored on Resource Dependence Theory (RDT), founded by Pfeffer & Salancik (1978). The theory is outlined in their book entitled The External Control of Organizations. According to RDT, organizations are not independent; they rely on external forces to meet their resource needs, which are essential for their existence and development. Because organizations depend on external actors who control these resources, they need to continuously adjust their strategies to reduce uncertainty and manage resource dependence. Later, various researchers, including Jiang et al. (2023), further contributed to the theory by introducing strategic measures such as diversification, alliances, and buffering mechanisms.
This theory is highly applicable to the present study because NGOs in Kakamega County heavily rely on external sources of funding to finance their activities, administration, and development programmes. According to RDT, such reliance exposes organizations to risks and vulnerabilities, particularly where external financing is volatile and unpredictable. Financing volatility, manifested through fluctuations in the volume of funds received, delays in disbursement, and over-reliance on a few external sources of financing, could negatively affect financial sustainability.
A major strength of RDT is its realistic assumption that the external environment influences organizational behaviour and sustainability. The theory highlights the reasons why NGOs should strive to diversify their sources of resources as one of the approaches to reducing vulnerability. However, the theory has also been criticized. Celtekligil (2020), for instance, argues that the theory portrays organizations as passive entities responding to external influences while paying insufficient attention to their innovative capabilities and leadership.
According to Huffstetler et al. (2022), The Impacts of Donor Transitions on Health Systems in Low- and Middle-Income Countries examined the impact of donor transitions on the sustainability of NGOs, particularly those operating in the health sector. Using a qualitative approach based on 12 country case studies, the authors found that abrupt donor withdrawals led to programme disruptions, loss of experienced staff, and financial deficits. They concluded that volatile funding undermined organizational sustainability and continuity in service delivery.
Dreher et al. (2024) reviewed the literature on development aid allocation and effectiveness, examining how donor motives influence the distribution and outcomes of international aid. Their review identified recipient needs, governance considerations, and donor interests as important factors shaping aid allocation decisions. The authors emphasized that aid effectiveness should be evaluated in relation to the objectives pursued by donors rather than solely in terms of economic growth. These findings provide a broader perspective on how donor priorities may influence the allocation of external development resources.
The Bridgespan Group (2024) report entitled The Changing Landscape of Large-Scale Giving in Africa investigated trends in philanthropic contributions across 20 African countries through interviews with 150 philanthropic organizations. The report noted that although the number of large-scale philanthropic donations had increased, such funding remained unstable and time-bound. It further observed that most NGOs lacked adequate mechanisms for managing fluctuations in revenue, thereby contributing to financial instability.
Kituku (2025) report entitled Funding Landscape Report evaluated the effects of fluctuations in donor funding on the financial performance of NGOs in Nairobi, Kakamega, Kisumu, and Garissa counties. Through surveys and key informant interviews involving 100 NGO managers, the study concluded that fluctuations in donor funding volumes represented a major financial threat to NGOs. It found that fluctuations in funding volumes and restrictions attached to funding contributed to the inability of NGOs to invest adequately in institutional development. The report recommended stronger partnerships between NGOs and county governments, as well as the establishment of social enterprises.
Hussein & Thuranira (2023), the Kenya Institute for Public Policy Research and Analysis, released a policy brief entitled Assessing the Role and Challenges of NGOs in the Development of the Counties, which analyzed the experiences of NGOs in 10 counties in Kenya, including Kakamega. Based on survey results from 80 NGOs, the study found that NGOs operating in rural counties were more likely to be affected by fluctuations in donor funding than those operating in urban counties. The findings further revealed that funding cutbacks resulted in the suspension of community development projects and weakened organizational structures.
These findings illustrate the significance of variations in external financing flows for the financial sustainability of NGOs. Internationally, unpredictable donor cycles have posed challenges to organizational planning and continuity. Regionally, African NGOs are highly affected by dependence on a limited number of donors and restrictive funding conditions. Nationally, studies conducted in Kenya have revealed that inadequate external financing flows and time-bound funding arrangements affect programme sustainability. Notably, few studies have quantified the extent to which variations in external financing influence the financial sustainability of NGOs in Kakamega County. This study therefore seeks to address this gap by examining the relationship between external financing volume fluctuations and the financial sustainability of NGOs in Kakamega County.
Figure 1 below presents the conceptual framework that shows the link between variations in the funding and the financial sustainability of NGOs in Kakamega County, Kenya.
Variations in funding, which is the independent variable, are gauged using funding variations, income instabilities, and budget unpredictability, while financial sustainability, which is the dependent variable, is measured using the operating surplus ratio. Variations in funding entail changes in the amount of funding received, income instabilities refer to changes in the flow of income, while budget unpredictability involves challenges in forecasting the available financial resources. The variations in the funding can impact financial planning, resource allocation, financial sustainability, and the ability of the NGOs to have an operating surplus.
3. Methodology
This study was anchored on the positivist research philosophy. Positivism is founded on the belief that reality is objective, measurable, and can be understood through empirical observation and scientific inquiry. The philosophy emphasizes the use of observable facts and statistical analysis to establish relationships between variables. Positivism was appropriate for this study because it enabled the researcher to objectively examine the relationship between external financing volume fluctuations and the financial sustainability of NGOs using quantitative data.
The positivist philosophy facilitated the collection of numerical data on fluctuations in external financing volumes and the assessment of their influence on the financial sustainability of NGOs in Kakamega County, Kenya. The philosophy advocates the use of structured data collection instruments and statistical techniques to test hypotheses and establish empirical relationships between variables. Consequently, structured questionnaires and inferential statistical techniques were employed to generate objective and verifiable findings. In addition, the study adopted a deductive approach, whereby hypotheses derived from existing theory were empirically tested to determine whether external financing volume fluctuations significantly influence the financial sustainability of NGOs.
The study employed an explanatory research design to analyze the effect of external financing volatility on the financial sustainability of NGOs in Kakamega County, Kenya. An explanatory research design was suitable because it enabled the researcher to systematically examine the existing state of affairs regarding external financing without manipulating the variables. It also made it possible to examine changes in the amounts of external financing, their timing, the conditionalities attached to funding, and the dependence of NGOs on external financiers.
The target population comprised all 69 registered NGOs operating in Kakamega County, Kenya (Public Benefit Organizations Regulatory Authority, 2026). The NGOs constituted the unit of analysis because the study sought to determine how fluctuations in external financing volumes influence their financial sustainability.
A census sampling technique was adopted, whereby all 69 NGOs were included in the study. Census sampling involves collecting data from every member of the target population, thereby eliminating sampling error and enhancing the comprehensiveness of the findings (Taherdoost, 2022). The technique was appropriate because the target population was relatively small and manageable. Consequently, one finance officer from each NGO was selected to participate in the study, resulting in a total of 69 respondents. Finance officers were considered the most appropriate respondents because they are directly involved in budgeting, financial planning, donor fund management, accounting, and monitoring organizational financial performance. Their roles provide them with adequate knowledge regarding fluctuations in external financing volumes and their implications for organizational financial sustainability. The census approach was appropriate for the relatively small target population because it aimed to include all eligible NGOs in the study (Saunders et al., 2007).
Primary quantitative data were collected using a semi-structured questionnaire. The questionnaire was designed to collect information on external financing volume fluctuations and financial sustainability. Items measuring external financing volume fluctuations captured respondents’ experiences regarding changes in the amount of external funding received over time, while financial sustainability was assessed using indicators related to the organization’s ability to maintain operations and generate operating surpluses. The semi-structured questionnaire was selected because it ensured consistency in responses while allowing respondents to provide reliable information regarding the financial operations of their organizations. The quantitative data collected were analyzed using descriptive statistics, Pearson correlation analysis, and linear regression analysis in SPSS to examine the relationship between external financing volume fluctuations and financial sustainability.
To ensure the credibility of the findings, the study established both the validity and reliability of the research instrument. Content validity was achieved through expert review by university supervisors and specialists in finance and NGO management to ascertain whether the questionnaire adequately measured external financing volume fluctuations and financial sustainability. A pilot study was conducted among finance officers from NGOs outside the study area to assess the clarity, relevance, and adequacy of the questionnaire items, as well as the feasibility of the data collection procedures.
The reliability of the questionnaire was assessed using Cronbach’s alpha coefficient to determine the internal consistency of the measurement items. A Cronbach’s alpha coefficient of 0.70 or higher indicates acceptable reliability. Therefore, the study considered an alpha coefficient of at least 0.70 as evidence that the questionnaire consistently measured external financing volume fluctuations and financial sustainability, thereby ensuring the reliability of the data collected.
As demonstrated by the reliability test presented in Table 1, the study variables recorded Cronbach’s alpha coefficients above the recommended minimum threshold of 0.70. Specifically, External Financing Volume Fluctuations recorded a Cronbach’s alpha coefficient of 0.897, indicating a high level of internal consistency among the questionnaire items used to measure the construct. The results imply that the research instrument was reliable in measuring the variables under investigation. Since the coefficient exceeded the recommended reliability threshold of 0.70, the questionnaire was considered a dependable instrument for assessing external financing volume fluctuations and financial sustainability among NGOs. According to Ravinder & Saraswathi (2020), a Cronbach’s alpha coefficient of 0.70 or above demonstrates acceptable reliability for research instruments used in social science studies.
Variable | Number of Items | Cronbach’s Alpha (α) | Comment |
Financing volume fluctuations | 30 | 0.897 | Reliable |
The study analyzed quantitative data to comprehensively address the research objective. Data analysis involved the application of both descriptive and inferential statistical techniques. Descriptive statistics, including frequencies, percentages, means, and standard deviations, were used to summarize and describe the characteristics of the collected data. Inferential statistics included Pearson correlation analysis, which was used to determine the strength and direction of the relationship between external financing volume fluctuations and financial sustainability, while simple linear regression analysis was used to establish the effect of external financing volume fluctuations on the financial sustainability of NGOs. The Statistical Package for the Social Sciences (SPSS) was used for data coding, cleaning, management, and execution of the statistical analyses. Although SPSS facilitated data processing and statistical computations, it served as a software application rather than a data analysis technique.
External financing volume fluctuations were measured using ten questionnaire items assessing variations and unpredictability in donor funding, revenue instability, budget uncertainty, budget revisions, long-term financial planning, programme implementation, staffing, and operational continuity. The items were rated on a five-point Likert scale ranging from 1 = Strongly Disagree to 5 = Strongly Agree. Since all items were worded in the direction of financing instability and its adverse effects, the original scoring was retained, such that higher scores represented greater external financing volatility. The ten item responses were aggregated by calculating the mean score for each respondent to obtain a composite measure of external financing volume fluctuations, which was subsequently used in the correlation and regression analyses.
Ethical considerations were strictly observed throughout the study to safeguard the rights and welfare of the participating organizations and respondents. Prior to data collection, permission was obtained from the relevant NGO management to conduct the study, ensuring that confidential organizational information would not be disclosed without authorization. Participation in the study was voluntary, and respondents were fully informed about the purpose of the research before giving their consent. They were assured of confidentiality and anonymity and were free to decline participation or withdraw from the study at any stage without any consequences. The researcher upheld integrity, honesty, and objectivity throughout the research process by ensuring accurate collection, analysis, interpretation, and reporting of data without fabrication, falsification, or misrepresentation of findings.
4. Findings
Questionnaires were administered to 69 finance officers who belonged to NGOs registered in Kakamega County, Kenya. Of the total 69 questionnaires that were administered, 67 were returned, resulting in a response rate of 97.10 percent. The subjects were involved in the research through the completion and submission of questionnaires in line with the requirements of the study. Out of the total 69 questionnaires administered, two were not received since the particular respondents were unavailable at the time of follow up. The high rate of response can be credited to the self-administration of the questionnaire, ample time allocated to the respondents to fill it out, and follow up by the researcher, thus improving the involvement of the respondents. A response rate of 97.10 percent is adequate for analysis of the data. Mugenda & Mugenda (2003) indicate that a response rate of 60 percent and above is adequate for research purposes in social sciences. In light of this, the response rate attained for the current research was more than sufficient.
The main aim of the study was to assess the impact of changes in the level of external financing on the financial sustainability of NGOs in Kakamega County, Kenya. The specific purpose of the research was to establish the respondents’ perceptions on the impact of changes in the level of external financing on the financial sustainability of their firms. The respondents had to rate their level of agreement with some statements about changing levels of external financing, income instability, and budget uncertainties using a five-point Likert scale. It was found out that the respondents strongly agreed that changes in the level of external financing have a significant impact on the financial sustainability of their firms.
The study sought to examine the effect of external financing volume fluctuations on the financial sustainability of NGOs operating in Kakamega County, Kenya as indicated in Table 2. In this regard, the study established respondents’ views on the impact of variations in the volume of external financing on organizational operations and financial sustainability. The analysis revealed that respondents largely agreed that variations in the volume of external financing have considerable implications for the financial sustainability of their organizations, with mean scores ranging from 3.75 to 4.48. The results indicated that respondents largely agreed that their NGOs experience considerable variations in donor funding volumes from one financial period to another (M = 3.75, SD = 0.66). In addition, respondents agreed that the levels of external financing available to their organizations are often unpredictable (M = 4.15, SD = 0.36).
Item | N | Minimum | Maximum | Mean | Std. Deviation |
Our NGO experiences significant variations in donor funding from one financial period to another. | 67 | 2.00 | 5.00 | 3.7463 | 0.65928 |
The amount of external funding received by our NGO is often unpredictable. | 67 | 4.00 | 5.00 | 4.1493 | 0.35903 |
Changes in external financing frequently affect the stability of our organization’s revenue streams. | 67 | 4.00 | 5.00 | 4.1642 | 0.37323 |
Revenue fluctuations arising from external financing make it difficult to sustain organizational operations. | 67 | 3.00 | 5.00 | 4.0149 | 0.36897 |
Budget preparation is challenging due to uncertainty in external financing levels. | 67 | 3.00 | 5.00 | 4.4179 | 0.52655 |
Our organization frequently revises its budgets because of unexpected changes in external funding. | 67 | 3.00 | 5.00 | 4.2090 | 0.61638 |
Uncertainty in external financing affects long-term financial planning within the organization. | 67 | 4.00 | 5.00 | 4.2836 | 0.45414 |
Fluctuations in external financing disrupt the implementation of planned activities and programs. | 67 | 3.00 | 5.00 | 4.2239 | 0.64716 |
External financing volatility affects staffing decisions and operational continuity in our NGO. | 67 | 4.00 | 5.00 | 4.3134 | 0.46739 |
Variability in external financing reduces the organization’s ability to respond effectively to emerging challenges. | 67 | 4.00 | 5.00 | 4.4776 | 0.50327 |
Valid N (listwise) | 67 | — | — | — | — |
The study further established that changes in external financing affect the stability of organizational income (M = 4.16, SD = 0.37), while revenue fluctuations arising from external financing make it difficult to sustain organizational activities (M = 4.01, SD = 0.37). These findings indicate that funding instability is an important factor associated with NGOs’ ability to maintain operational stability and implement their planned activities.
The findings further demonstrated that budget preparation is challenging because of uncertainty in external financing (M = 4.42, SD = 0.53), while organizations frequently revise their budgets because of unanticipated changes in external financing (M = 4.21, SD = 0.62). This suggests that uncertainty in external financing affects the efficiency of financial planning and budgeting in NGOs. Similarly, respondents agreed that uncertainty in external financing influences long-term financial planning within their organizations (M = 4.28, SD = 0.45). Respondents also indicated that variability in external financing affects the implementation of planned activities and programmes (M = 4.22, SD = 0.65) and staffing decisions and operational continuity (M = 4.31, SD = 0.47). This demonstrates that variability in external financing extends beyond financial management to influence human resource decisions and service delivery. In addition, respondents indicated that variability in external financing reduces the ability of their organizations to respond effectively to emerging challenges (M = 4.48, SD = 0.50), which recorded the highest mean score among the items under this construct. This finding suggests that variability in external financing poses significant challenges to the adaptability and sustainability of NGOs.
Generally, the study found that respondents agreed that external financing volume variability has negative implications for the financial sustainability of NGOs. The mean scores ranging from 3.75 to 4.48 indicate that respondents perceived variability in external financing, revenues, and budgets as important factors affecting organizational sustainability. These results are aligned with the findings of Huffstetler et al. (2022), which showed that sudden changes in donor funding can lead to disruptions in programmes, staff losses, and weakened sustainability among health NGOs in low- and middle-income countries. Similarly, Dreher et al. (2024) highlighted the role of recipient needs, governance considerations, and donor interests in shaping the allocation of development aid. Their findings provide broader context for understanding how external funding decisions may be influenced by donor priorities.
The findings are also consistent with Bridgespan Group (2024), which indicated that although philanthropic contributions in Africa have been growing, short-term and restricted grants can contribute to instability in NGO revenue flows and financial planning. Similarly, Kituku (2025) identified donor funding volatility as one of the key financial threats facing NGOs in Kenya, limiting long-term planning and sustainable institutional investment. The findings are further in agreement with Hussein & Thuranira (2023), which found that NGOs operating in rural counties such as Kakamega are adversely affected by funding uncertainties. According to the policy brief, funding cuts can result in the suspension of community projects, weakened organizational structures, and reduced financial resilience. Consequently, Hussein and Thuranira recommend greater emphasis on financial management and strategies aimed at improving funding predictability. These findings can also be explained by RDT (Pfeffer & Salancik, 1978), which posits that organizations depend on external actors for resources required for their survival and development. The theory further suggests that dependence on external financing can make organizations vulnerable when resource flows are insecure or unpredictable. In the case of NGOs operating in Kakamega County, unpredictability in the volume of donor financing can create financial uncertainty and challenges in budgeting and programme implementation.
Pearson correlation analysis was conducted to examine the relationship between external financing volume fluctuations and the financial sustainability of NGOs in Kakamega County. Specifically, the analysis assessed the relationships among volume fluctuations, shifting priorities, dependency, disbursement timing, and financial sustainability. The results indicated that all the independent variables had positive relationships with organizational financial sustainability, as presented in the table below.
The study tested the null hypothesis that external financing volume fluctuations have no statistically significant relationship with the financial sustainability of NGOs operating in Kakamega County, Kenya in Table 3. Pearson’s correlation analysis produced a correlation coefficient of r = 0.619 (N = 67), indicating a positive relationship between the measured external financing volume fluctuation score and financial sustainability. The relationship was statistically significant at the 0.05 level (2-tailed). Therefore, the null hypothesis was rejected, indicating that external financing volume fluctuations were statistically significantly related to the financial sustainability of NGOs in Kakamega County. Since higher scores on the ten measurement items represent greater external financing volatility, the positive correlation means that NGOs reporting higher levels of financing fluctuations also recorded higher financial sustainability scores. This finding should not be interpreted to mean that funding volatility itself improves financial sustainability; rather, it reflects the direction of the statistical association observed in the study. The finding indicates that changes in external financing volumes are significantly associated with the financial sustainability of the sampled NGOs and highlights the importance of how organizations respond to changing funding conditions.
Variables | Financial Sustainability | Volume Fluctuations |
Financial sustainability | 1.000 | 0.638 |
Volume fluctuations | 0.619 | 1.000 |
Regression analysis further showed that external financing volume fluctuations were a statistically significant predictor of financial sustainability. The regression coefficient was B = 0.321, indicating that a one-unit increase in the external financing volume fluctuation score was associated with a 0.321-unit increase in the financial sustainability score, holding the other variables included in the regression model constant. Because higher scores on the fluctuation scale represent greater financing volatility, the coefficient should not be described as an improvement in the stability or adequacy of external financing. Instead, the positive coefficient indicates that greater reported financing volatility was statistically associated with higher measured financial sustainability among the NGOs in the study. This may suggest that organizations exposed to changing financing volumes had developed mechanisms for adjusting budgets, managing cash flows, diversifying resources, or maintaining programme operations under changing funding conditions. However, these possible explanations are contextual interpretations and cannot be established as causal effects from the regression analysis.
The finding is consistent with the broader literature emphasizing the importance of external financing conditions to nonprofit financial sustainability. Carroll & Stater (2009) found that funding conditions influence the ability of nonprofit organizations to build financial reserves and sustain operations. The present finding therefore demonstrates that external financing volume fluctuations are significantly associated with NGO financial sustainability in Kakamega County. Rather than concluding that volatility is beneficial, the result highlights the importance of organizational capacity to manage changing financing conditions, including effective financial planning, cash-flow management, resource diversification, and prudent financial controls.
Table 4 below indicates the coefficient of determination (R² = 0.699) indicates that the regression model collectively explains approximately 69.9% of the variation in the financial sustainability of NGOs in Kakamega County. The remaining 30.1% represents variation in financial sustainability that is not explained by the predictors included in the model and may be associated with other organizational, financial, managerial, and environmental factors not captured by the model. The R² value therefore indicates substantial explanatory power of the overall regression model but should not be interpreted as demonstrating that external financing volume fluctuations alone are responsible for 69.9% of financial sustainability or as evidence of a causal effect.
Model | R | R2 | Adjusted R2 | Std. Error of the Estimate |
1 | 0.836 | 0.699 | 0.680 | 0.570 |
The adjusted R² of 0.680 indicates that, after taking into account the number of predictors included in the regression model and the sample size, approximately 68.0% of the variation in financial sustainability is explained by the model. The relatively small difference between the R² (0.699) and adjusted R² (0.680) suggests that the model retains substantial explanatory power after adjustment for the predictors included. Thus, the results provide evidence that the set of external financing volatility dimensions included in the regression model has considerable statistical explanatory power for financial sustainability among the sampled NGOs in Kakamega County. However, the result should be interpreted as an association and model-level explanatory capacity rather than as proof that financing volatility causes changes in financial sustainability.
H₀1: Volume fluctuations in external financing have no statistically significant influence on the financial sustainability of NGOs in Kakamega County.
Results obtained from the regression analysis in Table 5 indicate that external financing volume fluctuations were positively and statistically significantly associated with the financial sustainability of NGOs (B = 0.321, β = 0.563, p = 0.001). The unstandardized coefficient indicates that a one-unit increase in the composite external financing volume fluctuation score was associated with a 0.321-unit increase in the financial sustainability score, holding the other predictors in the regression model constant. Since higher scores on the volume-fluctuation measure represent greater external financing volatility, the coefficient indicates a positive statistical association between reported financing volatility and financial sustainability. The result should therefore not be interpreted as meaning that greater financing volatility improves financial sustainability. Since the p-value of 0.001 is less than the 0.05 significance level, the null hypothesis that external financing volume fluctuations have no statistically significant relationship with the financial sustainability of NGOs is rejected.
Model | Unstandardized Coefficients | Standardized Coefficients | t | p-Value | ||
B | Std. Error | β | ||||
1 | (Constant) | 5.067 | 0.489 | — | 10.38 | ＜0.001 |
Volume fluctuations | 0.321 | 0.052 | 0.563 | 3.50 | 0.001 | |
The standardized beta coefficient (β = 0.563) indicates that external financing volume fluctuations made a statistically significant contribution to the prediction of financial sustainability within the regression model. The positive sign means that higher scores on the measured volatility construct were associated with higher financial sustainability scores in the study sample. This finding does not imply that funding instability is inherently beneficial to NGOs. Rather, it may indicate that NGOs experiencing changes in external financing volumes have developed mechanisms for adjusting budgets, managing cash flows, diversifying resources, and maintaining programme operations under changing funding conditions. These possible explanations are contextual interpretations and cannot be established as causal mechanisms from the regression results.
The finding can be interpreted in light of RDT, which emphasizes the importance of external resources to organizational survival and performance. From this perspective, changes in the availability and predictability of external resources can create financial pressures requiring organizations to adjust their resource-management practices. The present finding therefore highlights the importance of organizational capacity to manage changes in external financing rather than suggesting that financing volatility itself strengthens sustainability. The finding is also considered alongside previous studies, including Carroll & Stater (2009) and Alregab (2026), which emphasize the importance of funding conditions, financial resilience, and organizational responses to external resource uncertainty. Consequently, the results underscore the need for NGOs to strengthen financial planning, resource diversification, cash-flow management, and financial controls to enhance their capacity to remain sustainable under changing external financing conditions.
5. Discussions
The objective of this study was to examine the effect of external financing volume fluctuations on the financial sustainability of NGOs in Kakamega County, Kenya. The findings indicate that external financing volume fluctuations are significantly associated with financial sustainability, with more stable and adequate financing volumes corresponding to stronger financial sustainability. This relationship suggests that the financial health of NGOs is closely connected to the predictability and adequacy of the resources available to them. External financing affects not only the amount of money available to an organization but also its ability to prepare realistic budgets, maintain cash flows, retain staff, sustain programmes, and make longer-term institutional commitments.
The finding can be understood in relation to the operating environment of NGOs in Kakamega County. Many NGOs operating at county and community levels implement programmes that depend substantially on grants and donor-supported projects. Their activities often involve vulnerable populations and service areas where alternative sources of institutional financing may be limited. Consequently, changes in the volume or timing of external funding can have immediate implications for programme continuity and organizational overheads. A reduction in funding may require an organization to postpone activities, reduce the scale of interventions, defer recruitment, or redirect resources from institutional development towards immediate programme needs. Conversely, predictable financing provides greater scope for organizations to plan expenditure, maintain staffing and administrative systems, and establish reserves that can cushion temporary funding interruptions.
The exposure of NGOs to financing fluctuations is also related to the structure of nonprofit funding. Unlike commercial organizations that may generate relatively predictable revenues through the sale of goods and services, many NGOs depend on grants that are restricted to particular projects, beneficiaries, activities, or funding periods. This can create a mismatch between programme financing and the recurrent costs required to maintain the organization. Even where an NGO receives substantial project funding, restrictions on the use of such resources may limit its ability to meet core institutional expenses. Funding volatility therefore represents not merely a reduction in available resources but also a source of uncertainty regarding the timing, flexibility and usability of those resources.
These circumstances are particularly relevant from the perspective of RDT. RDT posits that organizations depend on resources controlled by external actors and that such dependence creates vulnerability because resource providers can influence organizational choices and behaviour. For NGOs, donors and other external financiers constitute important resource providers whose funding decisions can affect organizational priorities, programme portfolios and expenditure patterns. Where an NGO has a narrow funding base or depends heavily on a small number of donors, changes in donor priorities, grant sizes or funding cycles can have consequences that extend beyond individual projects to the wider organization. The findings therefore provide support for the RDT proposition that dependence on externally controlled resources can expose organizations to environmental uncertainty.
The Kakamega context makes this theoretical relationship particularly important because NGOs often operate as implementing partners within externally financed development programmes. Their financial sustainability may consequently be influenced by decisions made outside the organization, including changes in donor priorities, funding cycles and programme requirements. This creates a degree of structural dependence in which organizational planning must accommodate the preferences and funding conditions of external resource providers. From an RDT perspective, financial sustainability is therefore partly a function of an organization’s ability to manage this dependence rather than simply its ability to secure a large amount of funding at a particular point in time.
The findings are consistent with previous research showing that predictable and diversified financing strengthens nonprofit resilience, while excessive dependence on unstable external resources can increase financial vulnerability. Carroll & Stater (2009) emphasize the importance of stable revenues in enabling nonprofit organizations to develop reserves and maintain continuity, while Alregab (2026) highlights the importance of predictable resources for organizational planning and sustainability. Taken together, this literature suggests that the issue is not simply the presence or absence of external financing, but the extent to which funding is sufficiently predictable, adequate and flexible to support both programme activities and institutional requirements.
The positive direction of the relationship should therefore be interpreted carefully. In this study, the measurement of external financing volume was oriented such that higher scores represented greater stability and adequacy of financing rather than greater instability. Thus, the positive relationship does not imply that greater funding volatility improves financial sustainability. Instead, it indicates that NGOs with more stable and adequate external financing tend to demonstrate stronger financial sustainability. This interpretation is important because volatility is generally expected to create financial uncertainty, whereas predictable financing allows organizations to plan expenditure and manage risks more effectively.
The finding has implications for NGO financial management in Kakamega County. Organizations can reduce their exposure to external financing uncertainty by diversifying their funding sources, strengthening local resource mobilization, developing unrestricted income where possible, maintaining appropriate financial reserves, and improving medium- and long-term financial forecasting. These strategies are consistent with RDT because they reduce excessive dependence on any single external resource provider and increase organizational control over critical resources. However, responsibility for resilience does not rest entirely with NGOs. Donors can also contribute to organizational sustainability by providing more predictable multi-year financing, allowing reasonable levels of flexible or core funding, and communicating changes in funding priorities sufficiently in advance.
6. Conclusions
The study concludes that external financing volume fluctuations have a significant influence on the financial sustainability of NGOs in Kakamega County, Kenya. The findings demonstrate that variations in the amount of external financing received by NGOs substantially affect their financial performance, operational continuity, and long-term sustainability. Given that many NGOs in Kakamega County rely heavily on external financing to implement development programmes, fluctuations in funding volumes remain a critical determinant of their ability to maintain stable operations and achieve their organizational objectives.
The study established a positive and statistically significant relationship between external financing volume fluctuations and financial sustainability. NGOs that experience stable and adequate external financing volumes are better positioned to undertake effective financial planning, meet operational obligations, sustain programme implementation, and build financial resilience. Conversely, significant reductions or inconsistencies in external financing volumes expose organizations to cash-flow challenges, budget deficits, interruptions in programme implementation, and reduced institutional capacity.
Regression analysis further confirmed that external financing volume fluctuations are a significant predictor of financial sustainability among NGOs in Kakamega County. The positive regression coefficient indicates that improvements in the stability and adequacy of external financing volumes significantly enhance organizational financial sustainability. These findings suggest that maintaining consistent external financing enables NGOs to improve budgeting, strengthen financial planning, and sustain service delivery even in dynamic funding environments.
The study further concludes that fluctuations in external financing volumes directly affect several aspects of organizational performance, including budgeting, resource allocation, programme implementation, staffing, and strategic planning. Changes in funding volumes often require NGOs to adjust expenditure levels, postpone activities, or reallocate limited resources to priority programmes. Organizations with effective financial management systems and sound planning mechanisms are better able to absorb funding fluctuations and continue delivering essential services without major disruptions.
The findings also reveal that excessive dependence on external financing increases the financial vulnerability of NGOs. Organizations relying predominantly on a limited number of external funding sources are particularly susceptible to financial instability whenever funding volumes decline unexpectedly. Such dependence threatens programme continuity, operational efficiency, and long-term organizational sustainability. Therefore, achieving financial sustainability requires NGOs to complement external financing with diversified sources of income and stronger internal resource mobilization strategies.
The study further concludes that sound financial management and proactive resource mobilization are essential for enhancing the financial sustainability of NGOs. Financial sustainability extends beyond securing external funding; it requires organizations to strengthen financial planning, build adequate financial reserves, improve budgeting systems, and effectively manage financial risks associated with fluctuations in funding volumes. NGOs that invest in these institutional capabilities are more likely to remain financially sustainable despite changes in external financing.
Overall, the study confirms that external financing volume fluctuations are a major determinant of the financial sustainability of NGOs in Kakamega County, Kenya. The findings contribute to the growing body of knowledge on nonprofit financial sustainability by demonstrating the importance of stable external financing in supporting organizational resilience and long-term performance. The study also highlights the need for NGOs to strengthen financial management practices, diversify funding sources, and build institutional capacity to mitigate the effects of fluctuating external financing and ensure sustainable service delivery.
7. Recommendations
The study recommends that NGOs strengthen their financial planning and budgeting systems to effectively manage fluctuations in external financing volumes. Organizations should develop realistic financial plans that anticipate possible increases or decreases in external funding and incorporate appropriate contingency measures to minimize disruptions to programme implementation and organizational operations. Strong financial planning will enable NGOs to maintain operational stability even during periods of reduced external financing.
The study further recommends that NGOs establish adequate financial reserves and emergency funds to cushion themselves against fluctuations in external financing volumes. Building financial reserves will enhance organizational resilience by enabling NGOs to continue implementing essential programmes and meeting operational expenses during periods of funding shortfalls. Such reserves can significantly reduce the financial risks associated with unpredictable variations in external financing.
Capacity building should also be prioritized to enhance the financial management capabilities of NGO staff. Organizations should invest in training finance officers and managers in financial planning, cash-flow management, resource mobilization, financial risk management, and sustainable financing strategies. Strengthening these competencies will improve the ability of NGOs to effectively manage fluctuations in external financing and maintain long-term financial sustainability.
The study further recommends that NGOs diversify their sources of income to reduce excessive dependence on external financing. This can be achieved through local fundraising initiatives, strategic partnerships with the private sector, income-generating activities, membership contributions, where applicable, and expansion of the donor base. Diversification of funding sources will reduce financial vulnerability arising from fluctuations in external financing volumes and improve organizational sustainability.
Finally, NGOs should strengthen their resource mobilization strategies by developing long-term partnerships with multiple development partners and improving proposal development and donor engagement practices. Establishing broad and sustainable funding relationships will help stabilize external financing volumes, reduce dependence on a limited number of donors, and enhance the long-term financial sustainability of NGOs operating in Kakamega County, Kenya.
8. Limitations of the Study
This research on external financing volatility and the financial sustainability of NGOs conducted in Kakamega County, Kenya, was subjected to some limitations that may have affected the outcomes of the research. One of the limitations involved self-reporting of data obtained from finance officers working in the selected NGOs. As such, the data collected by the study involved subjective views and experiences of the respondents; hence, it could not be objective in terms of capturing issues regarding donor financing, financial sustainability, and organizational operations.
Additionally, the study only covered NGOs in Kakamega County in Kenya, making the results only generalizable to NGOs in other geographical locations within and outside Kenya with varied external financing environment and organizational capabilities. The differences in priorities of donors, the ability of organizations to mobilize resources, and the institutional set-ups could affect the influence of external financing volatility on the financial sustainability of organizations in other areas. In spite of these weaknesses in the study, it has provided important empirical information regarding the influence of the fluctuations in the amount of external finance, the timing of disbursements, donor priorities, and external finance dependency on the financial sustainability of NGOs.
The data supporting the findings of this study are available from the corresponding author upon reasonable request, subject to applicable ethical requirements and confidentiality considerations.
The authors declare that they have no conflicts of interest. This research received no external funding, and no individual, organization, or institution provided financial support for the conduct of the study.
Views: -
Crossref: 0