INTERACTIVE FINANCIAL RISK MANAGEMENT STRATEGIES AND FINANCIAL SUSTAINABILITY AMONG NON-ROTATING INFORMAL FINANCIAL GROUPS IN KIRINYAGA COUNTY, KENYA

Abstract

The use of non-rotating informal financial groups (IFGs) as development intervention tools continue to gain popularity among developing countries yet their long-term viability remains under-explored. Despite the widespread uptake, these groups face excessive risk exposure and high rates of premature disintegration. It is estimated that 25% disintegrate due to liquidity constraints and loan defaults. Additionally, members lose 15-25% of savings annually. These trends raise serious concerns about the adequacy of IFGs’ risk management strategies. This study examined interactive financial risk management strategies and their influence on financial sustainability of non-rotating IFGs in Kirinyaga County, Kenya, focusing specifically on internal controls, diversification, financial literacy training, fiscal management, and their interaction effects. Anchored in contingency management theory and supported by social capital, adverse selection and resource-based theories, the study employed an explanatory embedded mixed-methods design. The target population was 60 non-rotating IFGs with 806 members registered at the county department of social services. Data was collected from 424 respondents drawn using a combination of stratified, census, purposive and simple random sampling. Primary data were gathered through questionnaires and key informant interviews, with instrument reliability and validity established through a pilot study in Murang’a County using 10% population. Data was analyzed for descriptive and inferential statistics using STATA version 13. Specifically, descriptive statistics included measures of central tendency and dispersion while inferential statistics drew from correlation and multiple regressions. Pearson correlation coefficient was deployed to test the relationship between risk management strategies and financial sustainability. Interaction-based logistic regression within a generalized linear model framework was employed to predict potential outcomes. The regression yielded positive log-likelihood, an indication of good fit. Results showed that interactions between financial literacy training and internal controls and between financial literacy training and diversification positively and significantly influenced financial sustainability. Conversely, interactions between fiscal management and internal controls and fiscal management and diversification had significant negative effects attributed to overly rigid fiscal controls. Although trends suggest potential synergistic effects between internal controls and diversification, and between financial literacy training and fiscal management, these interactions were not significant. The findings emphasize the complex interplay among risk management strategies. By integrating sound fiscal management and financial literacy training practices within internal controls systems and diversification projects, non-rotating IFGs can foster resilience and long-term financial sustainability. The study therefore recommends solid risk management approach that integrates internal controls, diversification, financial literacy training and fiscal management as their alignment rather than isolated implementation is critical for strengthening resilience and achieving long-term financial sustainability. Research findings provide appropriate data and policy recommendations to help formulate appropriate support programs for development partners, national and county governments. Future studies investigating the design and effectiveness of training programs is recommended.