CHAPTER TWO

LITERATURE REVIEW

2.1. Introduction

This chapter reviews the theoretical foundations that will discuss and explain

determinants of sustainability of local non – governmental organization projects. This includes:

human resource capacity, managerial capacity and financial management. Further, the empirical

studies related to the objectives of the study are also reviewed. The conceptual frame work of the

study will also be presented.

2.2. Theoretical Framework

This study will be guided by three theories namely resource dependency theory,

stakeholder theory, and community interest theory.

2.2.1. Resource Dependency Theory

Resource Dependency Theory (RDT) involves by explaining basically organizational

need resources. This means it emphasizes that organizations rely on external resource to survive

and function. Secondly, it highlights that dependency creates vulnerability. And lastly the

strategies to manage the dependences. Overall, Resource Dependence Theory helps us

understand how organizations navigate the complex world of external resources. By

acknowledging the power dynamics and potential vulnerabilities of dependence, it sheds light on

the strategies organizations use to secure resources, manage risk, and ultimately achieve their

goals.
The formulization of resource dependency theory (RDT) for organizations is generally credited

to the 1978 book by Jeffrey Pfeffer and Gerald Salancik titled “the External Control of the

Organizations: A Resource Dependence Prospective.”

2.2.2. Stake Holder Theory

This theory maintains that the interest of the stakeholders need not to harm stakeholders

(freeman, 2008). Edward Freeman, (1984) originally detailed the Stakeholder Theory of

organizational management and business ethics that addresses morals and values in managing an

organization. It also holds that an organization can enhance the interests of its stakeholders

without damaging the interest of its wider stockholders. This theory grew in response to the

economic management has a responsibility to provide the stakeholders with the reports on the

operations of the NGOs. It also has a responsibility to justify the value of the NGOs’ spending

plans (Haber, 2004). This theory is considered relevant in guiding this study because

stakeholders play a significant role in ensuring the financial sustainability of the NGOs

(Onyango, 2002). The role of the stakeholders is to ensure that the NGOs are financially stable

and all activities are directed towards realizing the goals of the NGO. The management ensures

that the NGOs are operating at optimal level in order to maximize shareholders’ profits and to

ensure their sustainability.

2.2.3. Community Interest theory.

Community interest reflects a common good shared by the international community. This interest

goes beyond the sum of individual state interests (Schoenborn, M. (2021). While similar to
public interest in national law, community interest is not simply an aggregate of individual state

interests. It represents shared values and concerns that transcend individual state benefits.

2.3. Empirical review

2.3.1. human resource capacity and sustainability

Capacity development is considered an endogenous dynamic process that relies on one’s

motivation, effort, and perseverance to learn and progress (Lopes et al, 2003) which enables

organizations to change, flourish and grow. In Somaliland, there has been a long-standing

History of projects executed and collapsing shortly after donors have withdrawn, due to lack of

community capacity building by donors. According to Barney (1995), The RBV theory

formulates a firm to be a bundle of resources. It is these resources and the way they are

combined which make firms different from one another. It is considered as taking the inside-out

approach when analyzing the organization. Barney further contends that the resources include the

skills of individual employees this therefor brings the need for staff competence.

Okorley et al, (2012) conducted a study on Organizational factors influencing sustainability of

local non-governmental organizations. The objectives of this study were to determine the factors

that influence sustainability of local NGOs based Ghanaian case study. The research used a

combination of quantitative and qualitative research approaches. The study established that the

availability of funds, quality material resources, supportive leadership, development of needs-

based and demand-driven programmers, and effective management can have a significant

influence on the sustainability of local NGOs. The study concluded that key factors that

influence sustainability are good leadership and availability of resources. It suggests that NGOs
20 needs to develop strategies that help invest in good leadership and proper utilization of

resources to foster sustainability.

Study done by Janet, (2018) factors affecting sustainability of nongovernmental organizations in

Nairobi, County Kenya. The study adapted the explanatory research design, targeted 1,881

registered NGOs in Nairobi County and a sample of 128 NGOs was selected. The study used a

non-probability sampling design. The study showed that human resources, community

engagement and fund development influence sustainability of NGOs positively. The study

showed that a majority of respondents were in agreement with the various aspects on human

resources. Additionally, majority of respondents agree that community engagement aspects of

collaborating with another 21 NGO, corporates, governments and local community will improve

sustainability of the organization.

According to Mbata (2006) the sustainability of community projects necessitates a team of very

skillful mangers due to numerous dynamics of the project implementation. Lack of success of a

community-based project is vastly attributed to lack of professionalism as well as the

management skills of the project implementers as a result of poor academic background. In order

to create good rapport, leaders need resources, time as well as the authority to invest in a project.

Capacity building in this area can be defined as: “Supporting organizations to build and maintain

the skills, infrastructure, and resources to achieve their mission.” (United Way of Calgary and

Area, 2011). Certainly, capacity building has received growing attention over the past 20 years

(Ontario Trillium Foundation, 2005). This enhanced interest in capacity building has occurred

simultaneously with the shift in the voluntary and community sectors’ pool of available funding,
increased expectation to do more with less, and overall public expectations of accountability.

Paradoxically, funders have often failed to recognize and support the strong two‐way relationship

between program success and organizational strength and sustainability (The California Wellness

Foundation, 2001). Capacity building is a key approach used by development organs to ensure

sustainability of development projects (Langran, 2002).

2.3.2. Doner influence and NGO sustainability

The issue of funding and accountability becomes even more complex when an NGO operates

across national borders, at which point the need for NGO transparency and accountability

becomes most clear. It is often almost impossible to accurately track the funding of NGOs based

outside the United States, Europe, Japan, and Australia. Most NGOs in the developed world have

at least achieved financial transparency as a result of a mix of public and private oversight,

regulation, and accreditation. Every NGO in the United States, for example, must file its finances

annually with the Internal Revenue Service (IRS), the federal agency in charge of taxation. Once

filed and processed, these reports are accessible to the public. In addition, every U.S. NGO must

register with the state in which it is resident and is required to publish an annual report.

Charitable organizations throughout Europe, Japan, and Australia are also required to register

with their governments; beyond registration, however, further accountability in terms of

governance and programs is not uniform, and in many cases is not required (McGann and

Johnstone, 2005).

In the past two decades, the development field has been experiencing an increase in donor driven

standardization of planning, reporting and accountability practices (Mawdsley, Townsend, Porter

and Oakley 2002; Wallace, Bornstein, and Chapman 2006). Funded by Northern-based donor

agencies, non- governmental organizations (NGOs) in countries of the global South (SNGOs)
carry out community-based work to alleviate poverty, provide social services, develop civil

society and democratic processes, and advocate for the poor and marginalized. However, these

procedures, presumably designed to increase accountability and transparency, and secure against

the misappropriation of funds, in many cases have shifted SNGO focus away from their most

meaningful work (Henderson 2002; Jellinek 2003; Markowitz and Tice 2002; Mawdsley et al.

2002; Perera 1997; Wallace et al. 2006).

2.3.3. Financial Management and sustainability of NGOs

Non-Governmental Organizations (NGOs) play a vital role in addressing social, economic, and

environmental challenges around the world. However, their ability to deliver impactful programs

and achieve long-term sustainability hinges on sound financial management practices. This

literature review explores the key concepts of financial management and sustainability for

NGOs, highlighting the challenges they face and strategies for success. Developing a clear

financial plan that aligns with the organization's mission and strategic goals is crucial. This plan

should outline projected income and expenses, allowing for informed decision-making (Ibrahim,

H. I. (2017). GOs rely on diverse sources of funding, including grants, donations, memberships,

and earned income. Diversifying revenue streams reduces dependence on any single source and

fosters long-term sustainability (Abdelkarim, A. A. (2018).

maintaining transparent financial records and producing clear reports for donors, stakeholders,

and the public is essential for building trust and ensuring accountability (Bajary, A. R. (2019).

Implementing strong internal controls minimizes the risk of fraud and misuse of resources. This

includes establishing clear spending procedures and segregation of duties (Rahman, Md M.

(2016). Reliance on donor funding can be unpredictable, making long-term planning difficult.

Grant cycles can be short-term, and funding priorities can shift, creating uncertainty (Wandira, J.,
& Sang, B. E. K. (2017). any NGOs, especially smaller ones, lack the human resources and

expertise for sophisticated financial management practices. Skilled financial staff can be

expensive to hire and retain (Fafchamps, M., & Owens, T. (2017).