Different definitions of income diversification and its actual purpose exist. An increase in the variety of sources of income or a better balance between them are two purposes of income diversification. As a result, a home with two income streams would be more diverse than a household with just one source of income, which only makes up 10% of the total, according to Daud et al. (2018, p. 3). The term is frequently used to refer to an increase in the significance of non-farm income. Off-farm wage work and non-farm self-employment are both included in non-farm income. Private and public organizations may have different cost-sharing concerns and challenges. Income diversification has advantages and disadvantages, along with reasons for executing and ways to do it.
Between households and between nations, there is frequently a correlation between the percentage of income from non-farm sources and overall revenue. The positive wealth-non-farm association may also imply that people who start in low-income households may choose to invest in more productive agriculture technologies or non-farm enterprises that can help them escape poverty. It is related to a structural change at the national level, described as the long-term reduction of the agriculture sector’s contribution to the gross domestic product and employment in developing nations.
Households and individuals vary their incomes for a variety of reasons. The first set of motives consists of what are known as push factors. Those include risk reduction and responding to lessening component returns in any given use. Push factors include responses to crises or liquidity constraints and high transaction costs that encourage households to self-provision various goods and services. The second group of motivations includes pulling elements, such as the revelation of strategic complementarities between crop-livestock inclusion. The same micro-level factors that influence diversity are replicated at higher aggregate levels. From the push factor perspective, diversification is pushed by limited risk-bearing capacity in the presence of imperfect or underdeveloped financial systems. Due to labor and real estate market restrictions and climate uncertainties, these factors strongly encourage choosing a portfolio to stabilize income flows and consumption.
Income diversification has both advantages and disadvantages. The first positive factor is that expansion opportunities exist in the revenue streams offered to charitable organizations. Since they have the potential to increase overall organizational revenue, innovative nonprofit organizations are occasionally tempted to investigate new types of revenue streams. Second, diversification gives companies options when their dedicated revenue streams experience fluctuations. The disadvantage of the diversification of the income is that an organization risks losing its unique identity or other revenue streams if it gains a new source of income. Nonprofit managers have a challenge since diverse revenue streams carry a variety of hazards, and they lack the knowledge necessary to assess those risks for each revenue stream. The ability to consistently strike the ideal equilibrium that would maximize any benefit from exploring more streams is compromised by this complexity.
The challenge of accommodating expanding student populations without sacrificing education quality or fostering unwelcome access disparities has been and will continue to be a challenge for higher education systems. According to Bojnec & Knific, the growth of self-employment impacts households’ lack of interest, lack of time, and business risks when considering hiring outside resources to grow their businesses (2021). Higher education finance has shifted throughout time to include increasing percentages of private funding. This trend may be connected to parallel privatization movements in many public administration and service sectors. Even though it is challenging to compare higher education to other forms of public institutions, the motivations for increasing private financial contributions to higher education are similar to those that underpin the privatization of other social subsystems. They include, among other things, limiting public spending during periods of extreme budgetary restraint, decreasing organizational inertia, and boosting efficiency by removing monopolies in favor of competitive environments.
In conclusion, a long-term strategy that incorporates planning, constant nurturing, and lots of patience is needed for revenue diversification. The secret to successful diversification is ensuring that one’s board and leadership recognize the value of revenue diversification and accept the need to look for new sources and combinations of funding.
Reference
Daud, A. S., Awotide, B. A., Omotayo, A. O., Omotoso, A. T., & Adeniyi, A. B. (2018). Effect of income diversification on household’s income in rural Oyo State, Nigeria. Acta Universitatis Danubius. Œconomica, 14(1). Web.
Bojnec, Š., & Knific, K. (2021). Farm household income diversification as a survival strategy. Sustainability, 13(11), 6341. Web.