Moderating effect of financial sustainability on the Relationship between financial innovation and financial Growth of non-governmental organizations in lake Region economic bloc -kenya

Abstract

Non-Governmental Organizations (NGOs) play a major role in supporting the well-being of underprivileged persons in less developed nations. Their funding stability and financial growth sustainability are foundamental to effective attainment of their goals. However, financial growth sustainability remains a key concern for even the most established NGOs world over. Whereas over the period 2010 to 2020, there has been a significant increase in NGOs being incorporated within the Lake Region Economic Bloc (LREB), literature reveals that 70% of the newly incorporated NGOs don’t survive when donor funding stops; attributing this to their inability to raise adequate internal funds. In terms of subject scope, the study is from the broad field of finance and sub field of financial management and area scope perspective study was carried out in Lake Region Economic Bloc. Empirical studies on the nexus between financial innovation, sustainability and NGOs’ growth revealed varied findings; but majority of which examine profit making organizations, making it unknown how financial innovations and sustainability influence financial growth of NGOs. The purpose of this study was to analyze moderating effect of financial sustainability on the relationship between financial innovation and financial growth of non-governmental organizations in Lake Region Economic Bloc-Kenya. Specifically, the study sought to; determine influence of financial innovation on financial growth of NGOs in LREB Kenya, to establish influence of financial sustainability on financial growth of NGOs in LREB Kenya and investigate the moderating effect of financial sustainability on the relationship between financial innovation and financial growth of NGOs in LREB Kenya. The study was guided by Resource based view, Diffusion, Porter’s generic and Schumpeter theories of innovation; which provide how new ideas spread to influence competitive advantage. Social Constructivist Research paradigm was adopted and executed through Crosssectional Research Design. The target population for this study was 517 respondents consisting of the CEOs and Finance managers. A sample of 220 respondents was selected based on modified Mugenda and Mugenda formula using simple random sampling method. Cross-sectional data involving both primary and secondary data were collected. Secondary data on financial growth was obtained from published NGOs’ reports while primary data on innovation was collected using structured five-point likert scale questionnaires. Data was analyzed using descriptive and inferential techniques involving; frequencies, percentages, independent samples t-test, one-way ANOVA, Pearson correlation and multiple regressions; to establish extent of innovation adoption and effect on financial growth of NGOs. Alpha coefficient of 0.841 indicated that data collection instrument was reliable, and validity test was done by involved experts judgement from Lecturers in research, NGOs experts. Results indicated that adoption of financial innovations significantly enhanced financial growth by 16.04% hence rejection of the H01 null hypotheses. Adoption of financial innovations was very high in LREB-Kenya given indices of 0.9. Further, product, process and structural innovations increased financial growth for NGOs in the LREB-Kenya by approximately 3.5%, 0.5% and 7.1% respectively hence a rejection of null hypotheses .A regression analysis coefficient of 2.796 having a p-value 0.015 for number of donors a sustainability aspect in the non-moderation effect model indicated a significant positive relationship between number of donors and percentage change in revenue such that a percentage increase in number of donors increased percentage change in revenue for NGOs in the LREB-Kenya by 2.8%, Null hypothesis rejected H02. A significant 2 R change of 0.033; 2 R changed from 73.7% to 77% after moderation implying that financial sustainability had a significant moderating effect of 3.3% and it enhanced influence of product, process and structural innovations on financial growth by 0.7%, 0.2% and 6.9% respectively, hence rejection of H03 Null Hypothesis. Results showed that financial innovation and sustainability significantly influenced financial growth of NGOs in LREB-Kenya by enhancing growth in revenues and financial sustainability significantly moderated the relationship between financial innovation and financial growth of NGOs in LREBKenya by enhancing influence of financial innovations on change in revenue. Findings of this study may be invaluable to management of NGOs in embracing financial innovation and sustainability adoption, scholars and policy makers. This is likely to enhance their revenue growth. More importantly, findings may also contribute to academia by providing valuable empirical data on innovation strategies influencing financial growth.