Supporting the transition of informal enterprises towards sustainable growth and formalization

Background

The informal economy is widespread through countries in Africa, the Caribbean and the Pacific and it provides a large share of the economy and employment. Although the informal economy offers employment and income opportunities, it is associated with low business productivity, lower incomes as well as social exclusion, poor access to financial services and limited labour rights.

Informal enterprises in low and middle-income countries have a structurally low productivity level, because of a lack of an enabling business environment, such as access to public services, business development services, training, markets and infrastructure. They also have poor access to capital; in part because the business management and financial skills of informal entrepreneurs tend to be underdeveloped, and because established financial sector actors may offer inadequate services.

A lack of adequate risk management instruments and government support makes informal enterprises vulnerable to socio-economic downturns. A loss in income often leads to poverty, hunger and disease of workers in this sector because they lack social protection, health insurance, pensions and other support mechanisms.

Purpose

This project, supported by the European Union and Organization of African, Caribbean and Pacific States and implemented with the United Nations Development Programme, aims to facilitate the growth and formalization of informal enterprises. Working together with UNDP, the ILO’s Social Finance and SME units will create an enabling regulatory environment for informal enterprises, reduce regulatory barriers, facilitate access to better financial services, enhance resilience, build capacity among intermediaries and informal entrepreneurs and it will disseminate knowledge and experience at the regional and global level.

Activities

The project consists of the following activities, targeting the many different stakeholders that have an impact on informal enterprises:

• An initial assessment to identify gaps.
• Supporting Mozambique, Sierra Leone and Solomon Islands in defining and promoting a framework for formalizing informal enterprises.
• Piloting innovative financial products with financial intermediaries that work with informal enterprises. Lessons learned and key insights from this activity are available here.
• Capacity building of governments and key informal sector intermediaries on topics such as business management, financial literacy, market access and entrepreneurship, to improve their business development services for informal enterprises.
• Capacity building of informal enterprises on entrepreneurship, financial literacy, marketing, business development and digital technology, to improve their productivity, market access, financial literacy and business management skills.