The financial factors that influence the success of community based organizations: a case study of Kibera Slums, Nairobi County, Kenya

Abstract

The rise in Non-Government Organizations (NGOs) in Kenya and other developing countries can be attributed to the need to address development issues and accelerate the transition of developing countries to developed countries. The input of these organizations in Kenya's development is manifest in the mainstream social structures. This necessitated the introduction of community based organizations that would provide the linkage between the big NGOs and grassroots communities. The size of CBOs compared to NGOs is smaller both in operational dimensions and human capacity. Many of them get their support from these NGOs and are therefore answerable to their donors for the funds they receive and the activities they use the funds for. This necessitates proper financial management systems and control mechanisms within these CBOs.

Donor organizations have raised concerns in the way CBOs report the utilization of resources they receive from their supporters. This study was conducted to assess the financial factors that influence the success of CBOs in Kibera slums. The guidelines provided by the International Accounting Standards (lAS) and International Financial Reporting Standards (IFRS) were used as benchmarks for proper financial management. The study used both qualitative and quantitative research methods to systematically collect data from CBOs in Kibera and got responses from finance officers and founders or managers regarding the financial systems put in place within their organizations and the challenges they face in ensuring the systems are meeting the international accounting standards and the expectations of international financial reporting standards.

Donor agencies funding projects within the slums were also sampled to get their views on the financial performance of the CBOs. The study found out that most CBOs do not have sufficient internal control mechanisms such as use of external auditors to assess their financial operations. The founders of the CBOs were hesitant to disclose certain material information regarding the ' finanCIal management of their organizations. General understanding of financial concepts that would lead to sound financial management is also lacking within most of the CBOs interviewed. Financial functions in some cases are performed by people who do not have any formal training in financial management. The donor community plays an important role in influencing the financial reporting mechanisms that CBOs use. This influence is largely due to the 'dependency' on the donor funding's for most if not all their activities. This in tum defines the nature of accounting systems that the CBOs adopt to record their financial transactions.