Effect of Regulatory Compliance on the Sustainable Performance of Non-Governmental Organizations in the Lake Region Economic Bloc (LREB), Kenya

Regulatory compliance has increasingly become a critical determinant of organizational sustainability among Non-Governmental Organizations (NGOs), particularly in developing countries where accountability demands, donor expectations, and legal obligations continue to intensify. In Kenya, NGOs operate within a dynamic and highly regulated environment characterized by evolving donor requirements, government oversight, and increasing public scrutiny. Despite an improvement in the NGO sector's sustainability index from 47% to 53%, the sector remains in the "sustainability evolving" stage, indicating persistent challenges in long-term organizational resilience and performance. Existing studies have largely focused on isolated dimensions of compliance or financial sustainability, with limited empirical attention given to the multidimensional influence of regulatory compliance on holistic sustainable performance within NGOs. This study examined the effect of regulatory compliance on the sustainable performance of NGOs operating within the Lake Region Economic Bloc (LREB) in Kenya. Specifically, the study evaluated the influence of internal control audits, financial reporting, licenses and tax compliance, and donor policies on sustainable performance. Guided by Dynamic Capability Theory and the Resource-Based View (RBV), the study adopted a positivist philosophy and an explanatory cross-sectional research design. Data were collected from 217 NGO executive directors and managers selected from 518 registered NGOs operating within the LREB region. Structured questionnaires administered through KoboToolbox were used to collect primary data. Reliability and validity tests confirmed the suitability of the research instrument, with all Cronbach's alpha coefficients exceeding the recommended threshold of 0.70. Descriptive findings indicated that most NGOs experienced moderate challenges in regulatory compliance, particularly in internal audit systems and financial reporting practices. Correlation analysis established positive and statistically significant relationships between all dimensions of regulatory compliance and sustainable performance. Multiple regression analysis revealed that regulatory compliance significantly predicts sustainable performance (R² = 0.602, p < .001), explaining 60.2% of the variation in NGO sustainability outcomes. Internal control audits (β = 0.367, p < .001) emerged as the strongest predictor, followed by donor policies (β = 0.279, p < .001), licenses and tax compliance (β = 0.149, p = .016), and financial reporting (β = 0.152, p = .049). The study concludes that regulatory compliance is not merely a legal or administrative obligation but a strategic governance mechanism that significantly enhances organizational legitimacy, donor confidence, operational efficiency, and long-term sustainability. The findings support the proposition of Dynamic Capability Theory that organizations capable of integrating compliance requirements into their internal systems are better positioned to adapt and achieve sustained performance. The study recommends that NGOs strengthen internal audit systems, institutionalize transparent financial reporting mechanisms, and invest in compliance-oriented organizational capabilities. Policymakers and regulators should simplify compliance procedures and provide continuous capacity-building support to enhance NGO sustainability.