Determinants' of the funding mix for non-governmental organizations in Nakuru county

Abstract

Non-Government Organizations (NGOs) have in the past decade encountered challenges in the raising of funds and maintaining sustainable capital bases primarily due to the global financial crisis, changing donor priorities and competition amongst themselves thus calling them to be run sustainably with an appropriate funding mix (equivalent of capital structure). The purpose of this study was to determine the factors that influence the funding mix for NGOs. Specifically, the study examined the effects that cost of finance, availability of commercial funds, management and NGO laws and regulations have on the funding mix adopted .by NGOs. Previous studies have focused on the funding mix for corporate bodies while this study closes the gap by investigating the funding mix for NGOs. The study developed a conceptual model on the determinants of the funding mix for NGOs. Specifically, the study conceptualized the funding mix for NGOs as a function of the cost of capital, availability of commercial funds, management and NGO laws and regulations. The study used a descriptive research design to draw the sample from the aggregate population of 2780 NGOs in the NGO council's directory on 31 December 2011 in Kenya. Purposive sampling was used to identify NGOs in Nakuru County(82 in total) from which random sampling was used to identify 30 -NGOs that participated in the study. Twenty five NGOs responded to the survey representing a response rate of 83%. Data was collected by use of structured questionnaires with both closed and open ended questions. Data was initially analyzed by use of frequency distributions. Additional analysis was conducted by use of Pearson Correlations to determine the relationship between the variables in the study using SPSS software Graphs and tables were used to present the data. The results show that the responding NGOs are not sustainable in the long-run because their capital structures consist of excessive short-term funds that are restricted to specific projects. The cost of funds was found to influence the funding mix that the specific NGOs use negatively. The study associates the use of short term funds to the unavailability of commercial funds in the market, lenders refusing to lend to NGOs, having commercial funds tied to specific projects and lenders taking too long (0 process commercial funds. The results further indicate minimal use of debt by the NGOs as a result of restrictive NGO regulations and laws in addition to external factors such as the local and global economic situation, political, capital flight policies instituted by other countries and exchange rate volatility.