Understanding the financial vulnerability and the financial decisions of non-governmental organisations: an empirical study of Ugandan NGOs
Thesis (PhD)--Stellenbosch University, 2018.
ENGLISH SUMMARY: Non-governmental organisations (NGOs) are key providers of essential services in developing countries, where government capacity is often limited. Despite their important role in socio-economic development and poverty reduction, NGOs in developing countries tend to be reliant on either a few foreign donors or on local communities’ contributions. In addition to the short contract periods and associated project risks, foreign funding is challenging and onerous as a result of information asymmetries and lack of transparency. Only a minority of larger and well-established NGOs can access reliable funding from international donors, whilst the remaining NGOs are financially vulnerable and struggle to survive. This is of grave concern to the societies within which these organisations operate as it can lead to the interruption of the delivery of critical services to beneficiaries. There are a number of studies on the financial vulnerability and associated coping strategies of NGOs in developed countries, but not in developing countries. This research aims to address this gap in the literature by investigating the nature of financial vulnerability and exploring the effective coping mechanisms implemented by NGOs in such contexts to deal with financial challenges and to ensure sustainability of the organisation and its programmes. To achieve the stated objective, the research investigates the financial vulnerability and stability of NGOs, focusing on the country case study of Uganda. The research adopts an empirical approach, using methodologies that have previously been used for developed countries to investigate the possible relationship between an organisation’s characteristics and its financial vulnerability. It subsequently focuses more narrowly but also more in depth on the subsample of NGOs in Uganda that have experienced a large decrease in revenue, applying a comparative technique that respects the organisations’ heterogeneity and allows testing for conditional relationships between different organisational factors (i.e. conditions that can mitigate the impact of financial vulnerability on programme expenditures). Finally, the research applies a qualitative, interpretive approach in order to gain a better understanding of the preliminary findings and the funding environment of Ugandan NGOs. It draws from 35 in-depth interviews with Ugandan NGO managers conducted during 2016. The respondents provide valuable insights that help to explain financial decisions and outline the coping strategies of NGOs to ensure financial survival and safeguard their commitment to their mission and to service delivery. Findings from the research indicate that financial vulnerability is a persistent and prevalent problem that affects the majority of local NGOs in Uganda as a consequence of uncertainty of funding flows. However, the way an organisation is affected depends on its expenditure and financial structure. A large variety of proposed coping strategies amongst organisations were identified. NGOs in Uganda have been proactive and innovative in exploring alternative funding sources to protect themselves against financial risks, especially those related to dependence on foreign funding. The lessons learnt from this research are useful both for NGO managers who are concerned about financial risk and vulnerability, but also more broadly for the community of development practitioners. The recommendations can assist NGOs to sustain their programmes on the ground and improve the financial stability of the NGO sector. This research contributes to the academic dialogue on financial vulnerability by providing a credible voice to NGOs, explaining their fears and their challenges. Further research is recommended to investigate the financial vulnerability of NGOs in other country contexts.
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