Determinants of financial sustainability of social enterprises established by public benefit organizations in Kenya

Abstract

In today’s world economies, the third sector or social (sector) pillar is a key component of sustainable growth and development. Social investment is the provision and use of capital to generate social, environmental as well as financial returns. In developing countries, social investment strategy is a good strategy for sustainable growth and development as it cautions public benefits organizations (PBOs) from dependency syndrome, donor fatigue and eventual collapse. The monumental contributions of the nonprofit organizations in Kenya’s development agenda is well articulated in academic literature, however, are scanty documented studies on financial sustainability of these social enterprises. This descriptive study based on primary and secondary data sources therefore sought to investigate the factors that determine the financial sustainability of social enterprises established by nonprofit organizations in Kenya. The study finds that the currently, PBOs rely on foreign grants and donations to a high extent as they source social enterprise income, corporate or private companies support to a moderate extent. Further, for financial sustainability, the PBOs apply the social enterprises and volunteerism to moderate extents. The study establishes that 13.1% of variations in financial sustainability of the PBOs is explained by variations in the study variables. There is a statistically significant positive relationship between income generated by the social enterprises and financial sustainability. There is also a statistically significant negative relationship between training costs and the financial sustainability of the PBO’s. It is also noted that project duration, project financing, project corporate governance and social innovations positively influence financial sustainability. The study recommends that PBOs should be encouraged to be socially innovative by establishing enterprises that support their course. The Government should also put in place policies to encourage social entrepreneurship while at the same time streamlining the volunteering framework.