Effect of Financial Management on Financial Sustainability of Sri Lankan Non-Governmental Organizations

Non-Governmental Organizations (NGOs) in Sri Lanka play a vital role in development through poverty alleviation, educational support, women’s empowerment, and disaster relief. However, their sustainability is increasingly challenged by donor fatigue, global economic shifts, and limited internal resources. This study examines how financial management practices influence the financial sustainability of Sri Lankan NGOs using a mixed-methods design. Drawing on Resource-Based Theory (RBT) and Saungweme’s (2014) framework, the study evaluates four predictors: Sound Financial Management Practices, Income Diversification, Own Income Generation, and Donor Relationship Management. Quantitative data were collected via structured questionnaires from 250 NGOs and analyzed using descriptive statistics, Pearson correlation, and multiple regression in SPSS. Complementary qualitative insights were obtained from semi-structured interviews with 15 NGO managers and thematically analyzed. Findings show that Sound Financial Management Practices are the strongest predictor of sustainability (β = 0.324), followed by Donor Relationship Management (β = 0.281), while Income Diversification (β = 0.267) and Own Income Generation (β = 0.215) also have significant positive effects. NGOs struggle with income generation due to regulatory barriers and limited entrepreneurial capacity, yet financial stability is enhanced through donor partnerships, diversified funding, and transparent reporting. The study confirms that internal financial competencies are critical to organizational resilience and provides practical recommendations for NGO managers, donors, and policymakers. Future research is encouraged on sector-specific performance and the use of digital financial systems to improve transparency and control.