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The Relationship Between Interactive Diversification and Financial

Sustainability of Informal Financial Groups in Kirinyaga County,

Kenya

Caroline Muthoni Njeru, Richard Juma, Dennis Otieno*, Clifford Machogu

Murang’a University of Technology

Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2025.910000233

Received: 30 July 2025; Accepted: 04 August 2025; Published: 08 November 2025

ABSTRACT

IFGs across the globe and especially in developing countries have struggled to maintain financial

sustainability. This could be attributed to overreliance on single stream of income causing inadequate cash

flow and liquidity problems. Under-diversification and adverse investment decisions further worsen the

problem. Theoretically, income diversification enhances performance by decreasing volatility in uncertain

economic conditions. The underlying assumption is that prudent diversification strategy eliminates risks.

However, empirical evidence reveals conflicting findings on the relationship between diversification and

performance suggesting that diversification alone is inadequate. This study evaluated the relationship between

interactive diversification and financial sustainability of informal financial groups (IFGs) in Kirinyaga County,

Kenya. The study targeted 60 non-rotating IFGs with 806 members registered with the County Department of

Social Services Kirinyaga County. Primary data was collected using a questionnaire and responses

corroborated with key informant interviews. The data was analyzed for descriptive and inferential statistics

using STATA software. Specifically, descriptive statistics included measures of central tendency and

dispersion while inferential statistics drew from correlation and multiple linear regressions. The study

established an insignificant inverse relationship between diversification and financial sustainability. However,

on interaction diversification had a significant relationship with financial sustainability. While the interaction

with financial training had a significant positive effect (β= .0991, p= 0.000), interacting with fiscal

management yielded a significant negative effect (β= -.0557, p= 0.000). In conclusion, financial sustainability

is enhanced by the interactions between diversification & financial literacy training while strengthening the

interactions between diversification & fiscal management through contingency planning, regular review of

strategy, cash flow management, and appropriate budgetary allocations.

Keywords: Diversification, Interaction, Sustainability, Informal Financial Groups.

INTRODUCTION

Background of the Study

Informal financial groups (IFGs) continue to play a crucial role of improving financial inclusion, particularly

among low-income households. These grassroots financial ecosystems are fundamental in fostering

community-based economic resilience through savings mobilization and provision of microcredit. However,

their financial sustainability and long-term viability remain challenging, often undermined by limited

diversification strategies. Diversification is the process by which firms engage in a range of business activities

(Githaiga, 2021). It derives from the fundamental premise of portfolio theory through the layman's expression

"don't put all your eggs into one basket." The rationale is expanding into a business-related or unrelated,

which doesn't react negatively to economic downturn similar to the core business activity (Reinholtz, Fernbach

& De Langhe, 2021).

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While diversification is widely acknowledged as a strategic safeguard against economic shocks, its isolated

influence on the sustainability of IFGs produces mixed results. In the 1960s, diversification was perceived as a

value-creating strategy. Most of the studies conducted then are generalized as premium diversification model

(Benito‐Osorio, Colino & Zúñiga‐Vicente, 2015). They reveal a positive linear relationship between

diversification and firm performance. However, this trend reversed in the 1980s with several studies

concentrating on the adverse effects of diversification showing that diversification destroys firm value

(Hoechle, Schmid, Walter & Yermack, 2012; Maudos, 2017). The mixed results suggest that diversification

alone is insufficient. Its effectiveness, rather, may be dependent on the existence of complementary

capabilities. Such interaction, where diversification is not just a standalone strategy but a dynamic practice

influenced by managerial and financial knowledge, has received inadequate scholarly attention. This paper

examines the relationship between interactive diversification and financial sustainability of informal financial

groups highlighting how fiscal management practices and financial literacy training amplify and mediate the

benefits of diversification. By considering diversification as an interactive rather than a linear construct, we

seek to provide deeper insights of the pathways to financial resilience in informal financial systems.

Statement of the Problem

The role of informal financial groups (IFGs) as a socioeconomic development tool meant to broaden financial

access has been acknowledged worldwide. IFGs provide credit to low-income households who are presumed

as high-risk borrowers by the contemporary financial institutions. While their goal is serving as many low-

income households as they possibly could, this is achievable if only they remain financially sustainable.

Despite their importance in socio-economic development, most informal financial groups experience liquidity

and cash flow problems resulting from overreliance on interest income. Their greatest impediment is

undercapitalization which could be attributed to overreliance on meager member savings and poor investment

decisions. This has led to unsustainable services and subsequent premature disintegration of several groups.

About 25% of informal financial groups disintegrate prematurely as a result of default and liquidity problems

(Malkamäki, 2015). Unsustainable IFGs are incapable of supporting the poor in the long run since they

eventually cease operations. Although convention knowledge dictates that income diversification enhances

performance, past empirical studies have produced contradicting results indicating that diversification in

isolation is insufficient. The current study therefore was an attempt to examine the relationship between

interactive diversification and financial sustainability of non-rotating IFGs in Kirinyaga County.

Objective of the Study

The objective of the study was to evaluate the relationship between interactive diversification and financial

sustainability of non-rotating IFGs.

The study was guided by the following hypothesis:

Ho: There is no significant relationship between interactive diversification and financial sustainability of non-

rotating IFGs.

THEORETICAL FRAMEWORK

The resource-based theory or resource-based view (RBV) considers a firm as a collection of resources and

capabilities (Miller, 2019). The theory is grounded on the argument that an organization strategy is dependent

upon resources and capabilities within its reach. Devised from Wernerfelt (1984) seminal article, strategic

management scholars proposed the resource‐based explanation of firm performance and heterogeneity.

Resources refer to stocks of available factors owned or controlled by a firm and include both tangible and

intangible components (Jawed and Siddiqui, 2019). Capability, on the other hand, is the ability of a firm to

utilize its resource to influence the desired end. According to RBV, firms have diverse resources and varying

levels of capabilities. Miller (2019) posits that the survival of an organization is dependent on its ability to

build on its skills and create new resources. Firms are likely to perform better with sufficient resources and

higher capabilities (Nason & Wiklund, 2018).

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Merely possessing superior resources cannot realize a competitive advantage for an organization. Rather, it is

how the organization makes the best use of its capabilities, resources and infrastructure (Alexy, West, Klapper

& Reitzig, 2018). Resources are considered valuable if they empower a firm to devise and implement

strategies to improve performance or mitigate impending threats (Kero & Bogale, 2023). The RBV explains

firms' heterogeneity in strategy and performance through internal characteristics. The primary reasons for

diversification are apparent benefits arising from the utilization of unexploited productive capacity, capability

build-up, risk reduction through diverse portfolio and broader target market.

Financial literacy training and fiscal management are strategic intangible resources that form organizational

capabilities. By embedding strong fiscal management and financial literacy training as core organizational

capabilities, institutions strengthen their internal resource base. This enables them to leverage resources

effectively, make better diversification decisions and achieve sustainable financial performance aligning with

the Resource-Based Theory.

EMPIRICAL REVIEW

Mathuva (2016) explored 212 deposit-taking SACCOs in Kenya for the influence of revenue diversification on

financial performance and financial performance over the period 2008-2013. Financial performance drivers

included capital base, size, loan to assets, cost-income ratio and leverage. The study findings reveal that

increasingly depending on non-interest income results to higher returns. Further, SACCOs with more diverse

revenue streams experienced higher returns volatility. The study offers empirical evidence on the size and

possible regulatory influences in the relationship between financial performance and revenue diversification.

The study found diversification benefits to be limited in licensed SACCOs revealing revenue diversification to

be beneficial to smaller SACCOs. This suggests the necessity to be cautious with the diversification strategy

adopted as SACCOs grow since it influences stability of returns and financial performance. Reliance on

secondary data, however, presents a methodological limitation relating to measurement of performance. The

absence of qualitative insights may limit understanding of the contextual factors that affect performance.

Musoke and Immaculate (2020) examined the effect of training on financial sustainability of enterprises (Small

and Medium) in Kampala that included manufacturing, retail, wholesalers and restaurants. The research design

deployed was correlational cross-sectional survey with data collection instrument being questionnaire and

interview guides. Respondents comprised microfinance and SMEs employees, and entrepreneurs. Data was

analyzed using descriptive, linear regression, Pearson correlation and narrative analyses. The study found out

that training affect financial sustainability of Small and Medium Enterprises. The study recommends that

training should cover all areas of business. Whereas the study links training to financial sustainability, it

ignores contextual and training-specific factors and therefore is lacking in comprehensive multifactor

approach. The current study adopts a context-based approach which is more holistic and dynamic to help

understand effectiveness of financial literacy training.

Gui-Diby (2022) conducted an assessment of fiscal management and financial performance in 86 countries

between the years 2005 to 2019. He notes that electing uninformed leaders lacking accurate knowledge of

current and medium-term program implications impact negatively on performance. Further, he observes that

lack of transparency allows for creative accounting by financial managers reducing effectiveness of fiscal

rules. The study concludes that availability of information and internal audit improve fiscal performance.

Although the study persuasively links financial management practices to improved fiscal balances, its narrow

methods and focus lead to unanswered questions. These methodological and contextual gaps were addressed

through robust methods and context-specific investigation to understand how interactions would drive

financial sustainability for the informal financial groups.

The Conceptual Framework

This study investigated interactive diversification and financial sustainability of IFGs. The framework

comprised diversification, financial literacy training and fiscal management as the independent variables. Pair-

wise interaction was considered where the financial literacy training and fiscal management were used to

predict potential outcome on financial sustainability. This is illustrated in Figure 1.

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Figure 1: The Conceptual Framework

DATA AND METHODOLOGY

The Research Design

The study adopted a mixed method descriptive research design. Quantitative research entails measurement of

variables through a numerical system, analyzing the measurements using statistical, computational or

mathematical techniques while reporting associations and relationships among studied variables. Conversely,

qualitative research is primarily exploratory and entails non-numerical data that can be observed and recorded.

It helps provide insights into the problem and to develop hypotheses or ideas for potential quantitative research

(Mugenda, 2013).

The Target, Sample Size & Sampling Technique

The study targeted 60 non-rotating IFGs with 806 members registered with department of social services in

Kirinyaga County and that have been in existence for over three years. Firms that have operated for at least 3 -

5 years are associated with greater financial stability and long-term survival (Murphy, 2018). The study was

conducted in Kirinyaga owing to the county’s high population and poverty levels. A combination of stratified,

purposive, simple random sampling and census was employed to sample 424 respondents. Questionnaire was

used as the main data collection instrument attaining a response rate of 76.2% (n=323). Key informant

interviews were used to corroborate responses from the questionnaires. Key informants included Community

Development Associations (CDAs) officials and County Social Services Officer.

Data Collection

This study used primary data. Data was collected through questionnaires and key informant interview guides.

The questionnaires were both closed and open-ended based on likert scale and covered all the variables under

study. Specific objectives were addressed through the structured questions whereas subjective responses were

Interaction Effects

Diversification

-Consistent and reliable income sources

-Incremental cost of new ventures

-Profit growth on multiple product lines

-Revenue stability on diversified

-Availability of

recovery mechanisms

Financial Literacy Training

-Existence of training

-Relevance of training

-Transparency in record keeping

-Manifestation of data distortion

Fiscal Management

-Funds management

-Resource mobilization

-Budget accuracy

-Cash flow management

Financial Training

Fiscal Management

Main Effects

Diversification

Financial Sustainability

-Ability to meet financial

obligations

-Control of expenses

-Capacity to invest and save

-Ability to cover non-performing

loans

Financial Training

Fiscal Management

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obtained via open ended questions. Key informants included four Community Development Associations

(CDAs) officials and one County Social Services Officer.

Data Analysis

Data was first coded with each response being assigned a number for ease of analysis. The coded variables

were entered into a data matrix worksheet for transfer to the data analysis and statistical STATA software.

Clean up was done to detect duplication, missing data and inconsistencies. Data was then subjected to

descriptive and inferential statistics. Specifically, descriptive statistics included measures of central tendency

and dispersion while inferential statistics made use of correlation, multiple linear regressions and hypothesis

tests. Regression analysis was performed to establish extent to which independent variables do predict change

in dependent variable. It was used to predict how strong the relationship between independent and dependent

variables is.

Regression Analysis

The analysis for the main effects-plus-interaction model would normally take the functional form;

xxbxaay







111

Where;

Y = Financial sustainability of informal financial groups in Kirinyaga County

, i,j= 1, 2, 3 represents interaction between variables diversification, financial literacy training and fiscal

management respectively.

FINDINGS

Descriptive Statistics

The descriptive statistics presented were for diversification strategy. The respondents were asked to indicate

their level of agreement with various statements using 1-5 likert scale where 1 is strongly disagree, 2 is

disagree, 3 is neutral, 4 is agree and 5 is strongly agree..

Descriptive Statistics for Diversification:

From Table 1, a significant majority (M=4.353, SD=0.780) believed that diversification contributed positively

to profitability, though some respondents viewed its benefits with caution. Increased revenue diversification

was found to increase market value by positively effecting profitability. Most respondents agreed that

diversification helped mitigate risk (M=3.855, SD=0.569) emphasizing its role as a risk management strategy.

Table 1: Agreement with Statements on Diversification

Mean

Std. Dev.

Diversification increases profitability

4.353

0.780

Diversification decrease exposure to risk

3.855

0.569

Costs of diversification outweighs returns

2.025

0.764

Revenue from other businesses helps meet group operational costs

4.276

0.793

Diversification facilitates the group to meet demand for loans

3.985

0.560

Overreliance on group savings leads to insufficient funds

4.910

0.286

Returns from other investment ventures have increased over the years

4.065

0.478

Average

3.924

0.3261

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Most respondents disagreed, indicating that diversification was generally viewed as cost-effective (M=2.025,

SD=0.764). This emphasizes the importance of investment strategy bringing out the need for project evaluation

as a means of cost management. A big number of participants (M=4.276, SD=0.793) agreed that revenue from

other businesses had helped meet operational costs. Most respondents believed that the groups were self-

sustaining in terms of covering its costs because they generated enough revenue to cover expenses. This high

consensus highlighted diversification’s role in sustaining operational expenses. Diversification facilitated

meeting loan demand as (M=3.985, SD=0.560) agreed. A majority believed that diversification enhanced the

group’s capacity to meet loan demands. This indicates that revenue from diversification was considered as a

strategy to improving group asset base. Overreliance on group savings led to insufficient funds as most

respondents as majority (M=4.910, SD=0.286) agreed on this. Respondents recognized that savings alone may

not suffice, underscoring the need for diverse revenue streams. Returns from other ventures had increased over

the years as (M=4.065, SD=0.478) agreed; indicating a positive view of returns from diversified investments,

though there was room for improvement. The average mean and standard deviation for diversification strategy

was (M=3.924, SD=0.3261).

Correlation Analysis

This study adopted the Pearson correlation coefficient to test significance and presence of correlation. The

findings in Table 2 shows that financial literacy training had a very weak negative correlation with financial

sustainability of non-rotating IFGs at 95% confidence level (r= -0.0191; p<0.05). The variable was significant.

Table 2: Correlation Results

Diversification

Fina

ncial literacy

training

Fiscal

management

Financial

sustainability

Diversification

Pearson Correlation

1.000

Sig. (2-tailed)

323

Financial literacy training

Pearson Correlation

.4555

1.000

Sig. (2-tailed)

.000

323

Fiscal management

Pearson Correlation

.2901

.3808

1.000

Sig. (2-tailed)

.000

323

Financial sustainability

Pearson Correlation

.6505

-.0191

.1004

1.000

Sig. (2-tailed)

.000

323

**. Correlation is significant at the 0.05 level (2-tailed).

The negative correlation could result from training which is theoretical and not aligned to the real needs of

informal financial groups thus turning unproductive despite incurring expenses to train. In some cases, the

training may disrupt traditional group dynamics or practices that were previously effective, for instance time

spent in training that could spent on income generating activities to improve sustainability. This suggests that

financial literacy programs must be practical, context-specific, and coupled with continuous mentorship to

positively influence financial sustainability outcomes. Diversification strategy, on the other hand, had a

moderate positive correlation with financial sustainability of non-rotating IFGs at 95% confidence level

(r=0.6505; p<0.05). Fiscal management strategy had a very weak positive correlation with financial

sustainability of non-rotating IFGs at 95% confidence level (r= 0.1004; p<0.05). The positive correlation could

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be associated with fiscal management practices such as budget cuts that positively impact financial

sustainability in the short-term by ensuring solvency.

Regression Analysis:

From the findings in Table 3, diversification had an inverse relationship (β= -.0562) with financial

sustainability. The relationship was insignificant. The negative relationship may occur when informal financial

groups spread their resources too thin across multiple ventures without adequate capacity, knowledge, or risk

assessment. Diversifying into unfamiliar or unprofitable areas can strain finances, reduce focus, and expose the

group to higher risk. Additionally, diversification without clear strategic planning may lead to

mismanagement, internal conflicts, or poor investment returns. In the context of non-rotating informal

financial groups, limited capital and expertise make it challenging to manage diverse activities effectively,

suggesting that focused, well-informed investments may be more beneficial than broad, uncoordinated

diversification efforts.

Financial literacy training negatively impacted financial sustainability by 40.85% (β= -.4085; p=0.000).

Mismatch between training and practice can lead to no improvement. This may arise in the case participants

are trained but lack resources to effectively implement whatever has been taught to diversify income.

Additionally, members may be trained on entrepreneurship but choose sole proprietorship as opposed to setting

up investment projects as a group. The cost of training in this case, where there is no direct return to the group,

may negatively affect sustainability. Training may also lead to overconfidence prompting members to engage

in speculative businesses that are high risk. Besides, majority of the respondents noted that training fees impact

group profitability. Training programs need to be cost effective and justified by value in terms of returns.

Fiscal management had an inverse significant relationship with financial sustainability (β= -.5833; p=0.000).

The inverse relationship could be attributed to tighter fiscal controls that may prompt reduced investment

therefore negatively affecting capacity which is a critical aspect of financial sustainability. Risky investment

behavior resulting from overconfidence may have led to wrong or failed investments causing cash flow

problems. This may further have caused low liquidity where groups were unable to meet immediate short term

financial requirements. Further, diversification entails increased set up and operational costs which could

increase cost of doing business thus impacting sustainability negatively.

Diversification had an inverse relationship with financial sustainability decreasing it by 5.62%. However, an

interaction between diversification and financial literacy training enhanced financial sustainability by 9.91%.

The findings agree with the study by Mouna & Jarboui (2015) that associate appropriate diversification with

financial literacy training. The increase could be attributed to high confidence from training leading to

speculative investment in high-risk portfolio. Portfolio theory shows that investments with greater potential for

loss generally offer the possibility of higher profits as per risk-return tradeoff. Training may have equipped

individual members with skills to engage in sole proprietorship thereby improving their loan repayment rates.

Most of the respondents indicated that their groups undertook unrelated diversification. The increase in

sustainability could therefore be attributed to spreading of risks across diverse portfolio. The findings concur

with Awiti, Mburu and Gathaiya (2021) whose study found a direct relationship between non-related

diversification and financial sustainability.

The interaction of diversification with fiscal management significantly decreased financial sustainability by

5.57%. The decrease on interaction with fiscal management could result from tighter fiscal controls that may

prompt budget cuts and reduced investment therefore negatively affecting capacity which is a critical aspect of

financial sustainability. Excessive cost-cutting without strategic consideration can undermine key capabilities.

In addition, the decline could result from cash flow management problems where groups realize negative cash

flows due to failed or wrong investments. Adversarial business decisions may increase operational costs which

might not be recouped through the generated returns. Inability to determine financial performance due to poor

record keeping could also contribute to hidden losses thereby affecting financial sustainability. Diversification

can heighten financial resilience. However, poor fiscal management normally undermines such success.

Overextension and insufficient budget allocation influence project implementation

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Table 3: Regression results

Model

Unstandardized Coefficients

P > I zI

Std. Error

Main Effect

(Constant)

3.8224

.3419

28.57

.000

Diversification (D)

-.0562

.1215

-.46

.644

Financial literacy training (FLT)

-.4085

.0719

-5.67

.000

Fiscal Management (FM)

-.5833

.0519

-11.24

.000

D*D

-.0256

.0048

-5.37

.000

D*FLT

.0991

.0216

4.59

.000

D*FM

-.0557

.0085

-6.59

.000

FLT*FLT

-.0155

.0154

-1.00

.316

FLT*FM

.0160

.0113

1.41

.158

FM*FM

.2357

.0007

348.6

.000

Results were substituted as follows:

Y= 3.8224 – 0.0562X

– 0.4085X

– 05833X

– 0.0256X

+ 0.0991X

– 0.0557X

– 0.0155X

0.0160X

+ 0.2357X

Where;

Y = Financial sustainability of informal financial groups in Kirinyaga County

= Diversification

= Financial Literacy Training

= Financial Management

, i,j= 1, 2, 3 represents interaction between variables diversification, financial literacy training and fiscal

management respectively.

Financial sustainability= 3.8224 – 0.0562(Diversification) – 0.4085(Financial literacy training) –

0.5833(Fiscal management) –0.0256(Diversification*Diversification) + 0.0991(Diversification*Financial

literacy training) – 0.0557(Diversification*Fiscal management) – 0.0155(Financial literacy training*Financial

literacy training) + 0.0160(Financial literacy training*Fiscal management) + 0.2357(Fiscal management*Fiscal

management).

Test of Hypothesis

The null hypothesis:-“There is no significant relationship between interactive diversification and financial

sustainability of non-rotating IFGs in Kirinyaga County” was tested as shown in Table 4.

Table 4: Marginal Effect of Interaction

Cross-variable

Interaction

Main

Interaction

% Change

Impact on Sustainability

P > I z I

Null Hypothesis

DS*FTS

-0.4085

0.0991

9.91%

Increase

0.000

Rejected

DS*FMS

-0.0562

-0.0557

5.57%

Decrease

0.000

Rejected

FMS* FTS

-0.4085

0.0160

1.60%

Increase

0.158

Fail to reject

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Ho: There is no significant relationship between interactive diversification and financial sustainability of non-

rotating IFGs.

Diversification had an inverse relationship with financial sustainability decreasing it by 5.62%. However, an

interaction between diversification and financial literacy training significantly enhanced financial sustainability

by 9.91% (p=0.000). The interaction between diversification and fiscal management significantly decreased

financial sustainability by 5.57%. While the interaction with financial literacy training would lead to an

increase in sustainability, interacting with fiscal management led to a decrease in sustainability. The decline in

sustainability could be attributed to stringent fiscal controls in the form of reduced investment and budget cuts.

Stalled investment projects could lead to the inability to sufficiently anticipate and plan for cash needs leading

to cash flow and budget problems. Resource acquisition, allocation and usage would be effective if leaders are

conversant with budgeting and cash flow management.

The null hypothesis that interactive diversification has no significant relationship with financial sustainability

was therefore rejected and the study concluded that the interaction of diversification strategy with financial

literacy training and fiscal management has a statistically significant relationship with financial sustainability.

DISCUSSIONS OF THE FINDINGS

Diversification strategy had a moderate positive correlation with financial sustainability (r=0.6505; p<0.05).

The findings established an insignificant inverse relationship between diversification and financial

sustainability (β= -.0562). This is in contrast to the study by Talel, Asienga & Githaiga (2024) who found that

diversification enhances financial sustainability. Theoretically, diversification can have both positive and

negative impacts. The inverse relationship was attributed to failure to conduct risk assessment on investment

ventures leading to costs of diversification outweighing returns.

Upon interaction with fiscal management, the effects of diversification become significant. The decline could

be attributed to the group characteristics in terms of liquidity risk where groups may fail to meet short term

financial obligations. Further, diversification increases operational costs which might not be recouped through

the generated returns. This may result from adversarial business decisions. Poor record keeping could also

contribute to the decline in that it’s impossible to determine financial performance of a business without

appropriate records. The finding supports the views that institutions that diversify without proper fiscal

planning and without liquidity buffers often experience cash flow problems (Central Bank of Kenya et al.,

2021).

Interaction with financial training was however positive. The findings agree with the study by Mouna &

Jarboui (2015) that associate appropriate diversification strategy with financial literacy training. The increase

in sustainability is attributed to the fact that majority of the respondents were trained in entrepreneurship and

were in agreement that training in entrepreneurship improved group revenue. Most of the respondents

indicated that their groups undertook unrelated diversification. The increase in sustainability could therefore be

attributed to spreading of risks across diverse portfolio. The findings concur with Awiti, Mburu and Gathaiya

(2021) whose study found a direct relationship between non-related diversification strategy and financial

sustainability.

CONCLUSIONS AND RECOMMENDATION

Adopting diversification led to a reduction in financial sustainability. However, the interaction between

diversification and financial literacy training had a positive significant effect on financial sustainability. The

study concludes that integrating diversification with financial literacy training equips individuals with skills

necessary to create balanced portfolio that match risk tolerance and financial goals. Pairing diversification with

financial literacy training is a crucial risk strategy for improved individual and institutional financial resilience.

Diversification benefits may only be fully achieved when individuals understand its principles through

training. Without financial literacy, it may be misapplied or misunderstood.

The interaction between diversification and fiscal management reduced financial sustainability. The decline

was significant. Incorporating diversification with fiscal management is critical in promoting stability, strategic

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flexibility and financial sustainability. Whereas fiscal management deals with the planning, allocation and

control of financial resources, diversification guarantees that such resources are not reliant on single source.

Diversification without regard for effective fiscal management can unintentionally create dependencies while

increasing risks. By integrating strategic diversification into forecasting, budgeting and risk management,

institutions can improve resilience, adapt to the constantly changing environment while maintaining

operational continuity. When poorly integrated or misaligned, diversification and fiscal management may

inadvertently lead to a decline in financial sustainability. Basically, diversification is a powerful strategic tool

for sustainability but only if well aligned and integrated into effective fiscal management. In the absence of a

thoughtful alignment, risk planning and oversight, diversification may lead to resource strain, inefficiencies

and instability.

The study recommends that informal financial groups align diversification efforts with fiscal strategy and core

mission by undertaking mission-alignment and cost-benefit analyses. Integrating diversification risks into

fiscal planning through build-up of risk buffers and reserves will assist caution groups during economic

downturns. Adopting fiscal practices such as contingency planning and pilot programming where phase

expansion is executed gradually would help groups mitigate exposure to risks. Policy makers should design

training programs that integrate diversification initiatives with comprehensive and robust financial literacy

training to ensure group members have the skills, knowledge and resources necessary to effectively and

sustainably manage multiple revenue sources

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INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025

Page 2875

www.rsisinternational.org

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