Policies and Actions Addressing Populations Depending on the Informal Economy

  • Jacques Charmes
Part of the Demographic Transformation and Socio-Economic Development book series (DTSD, volume 10)


Since its inception as a concept and its first tentative measurements, the informal economy has inspired two main types of policies from the governments or the international institutions: the first one is a basic component of poverty alleviation strategies, that is, the provision of income-generating activities or of a minimum of workdays per period of time; the second one is the support to the creation or the promotion of micro-enterprises. Through their main components and variants, these policies can be analysed around three general approaches of taxation, upgrading the informal activities within the value chain and organising the populations dependent on the informal economy as well as three main pillars that are social protection, skills enhancement through Technical and Vocational Education and Training, and finance (especially micro-finance). Skills enhancement and finance deal with the supply side of the informal production, seeking to improve or develop the means of production, increasing the manpower’s skills, or a more capital-intensive organisation of the micro-firms. Social protection on the other hand is a different approach that could be seen as intervening further to the supply side approach. By many aspects a more universal social protection system can be considered as an efficient means of increasing the productivity of the workforce, making it healthier, more confident in the future and in a soothed relationship with the employers. It is the backbone of the global framework for the transition from the informal to the formal economy as defined and designed by the recommendation 204 adopted in 2015 by the International Labour Conference.


The faculty of resilience of the informal economy early caught the attention of governments hesitating between intervention and laisser-faire. Why intervene given that jobs are created? But how let it go given these jobs are not decent? Today official initiatives towards the informal economy take place within the conceptual and empirical framework of the transition from the informal to the formal economy (ILC recommendation 204).

Since its inception as a concept and the first attempts of its measurement, and also depending from which end of the telescope it is observed, the informal economy has inspired two main types of policies from the governments or the international institutions: the first one is a basic component of poverty alleviation strategies, that is, the provision of income-generating activities or of a minimum of workdays per period of time; the second one is the support to the creation or the promotion of microenterprises. Through their main components and variants, these policies can be analysed around three main pillars that are social protection, skills enhancement through Technical and Vocational Education and Training (TVET), and finance (especially micro-finance), as well as two specific approaches of upgrading the informal activities within the value chain and organising the populations dependent on the informal economy. Skills enhancement and finance deal with the supply side of the informal production, seeking to improve or develop the means of production, increasing the manpower’s skills, or a more capital-intensive organisation of the micro-firms. Social protection on the other hand is a different approach that could be seen as intervening further to the supply side approach. As a matter of fact, it has often been undertaken independently and even prior to policies addressing the improvement of the means of production. By many aspects, a more universal social protection system can be considered as an efficient means of increasing the productivity of the workforce, making it healthier and more confident in the future and in a soothed relationship with the employers.

However, at the macroeconomic level, the very first concern of the States and of the financial institutions providing aid and counselling to the governments of developing countries was about taxation: if it was true that the informal economy did represent such a share of GDP, then it should be transformed into governments’ resources and revenues, all the more so as the provision of support to these firms transform them into formal activities that become liable to the payment of taxes.

In this chapter, we will address successively the issue of taxation of informal activities, then the policies aiming at upgrading the informal activities within the value chain and at organising the populations dependent on the informal economy and finally the three pillars of policies designed to tackle the informal economy: social protection, skills enhancement and finance.

Taxing the Informal Activities

Although the willingness to tax the poor may be found paradoxical and counter-productive in countries where tax evasion is likely to be more important among formal actors, the huge numbers of informal operators allow considering the broadening of a very narrow tax base. Doing so, governments are focussing their action towards the upper tier of the informal economy – that is, the informal microenterprises – rather than the lower tier or the income-generating activities. Many governments and international institutions, such as the World Bank, often continue to apprehend the question of the informal economy through the only glasses of tax evasion and the shadow economy: the share of GDP or the amount of loss in taxes is deducted through macromodelling (Schneider’s estimates are very often taken as references for the size of the informal economy, what they are not; see Chap.  2). The shortfall for VAT is stressed.

Early research by ILO in Africa and Latin America have shown that if they were compelled to pay the various taxes to which the formal sector is submitted, many of the informal activities would not be able to survive (Maldonado 1999). On the other hand, informal entrepreneurs pay for the value added tax (VAT) on their purchases as if they were final consumers even if they don’t claim for VAT from their clients. Moreover, they are often submitted to the payment of briberies that surveys have shown to be at least equivalent and often higher than the payment of the taxes that they should have paid. Further, it is far from sure that the payment of official taxes would protect the informal operators from paying undue briberies (for a recent assessment of such informal taxes, see, for instance, Nkuku and Titeca 2018, about the Democratic Republic of Congo). And finally informal operators may not consider themselves as beneficiaries of the public services that taxes are supposed to provide to the population (electricity, water, sanitation, security, education, health, etc.), given their poor accessibility. In other words, they are not part of the social contract.

As a precondition of formalisation, the design of a tax that would fit with the realities experienced by the informal operators has been attempted in several countries in Africa and Latin America. In Burkina Faso, the contribution of the informal sector (become contribution of microenterprises: CME, in 2014) is a unique tax (called synthetic or presumptive tax in other countries) – paid quarterly – by the operators whose annual turnover is less than 15 million FCFA, the amount of which is fixed according to several criteria (geographical location, category of activity). However the impact is low, and the cost of collection is high. Some good practices can be quoted in Argentina and Brazil where fiscal taxes were combined with social contributions (Van Elk and de Kok 2014). In Argentina, the “Monotax” system was implemented in 1998 to replace the income tax, the VAT and the social contributions (including for pensions) by a unique monthly lump tax, the amount of which is fixed according to the level of annual turnover, the consumption of electricity or the size in square meters of the workshop (the one of the three criteria that determines the highest payment is applied). Globally, the total amount of taxes due is reduced as compared to what the micro-entrepreneur would have had to pay otherwise. Seventy percent of the receipts go to the social security and 30% to the local governments. The SIMPLES programme in Brazil consists in the simplification of the fiscal system by replacing the whole set of taxes and social contributions with a unique monthly contribution. Furthermore social contributions are no longer based upon salaries, but on a fixed share of total receipts (or turnover), hence an incentive for the entrepreneur to hire employees and/or register his (her) informal employees (Fajnzylber et al. 2011). These programmes generally exempt the beneficiaries from all taxation that would be due for prior activities. Another efficient method that was introduced in Sao Paulo in 2007 and proved to be successful consisted in taking the consumers’ viewpoint into account by organising lotteries on purchases’ receipts: it encourages clients to ask for proof of their purchase, and it puts pressure on businesses to register. Although sometimes accused of “crowding out of tax morale” and having negative long-term welfare effects (Fabbri and Wilks 2016), such programs have also been used in Argentina, Chile, Costa Rica, as well as in China (‘fapiao’), Greece, Slovakia and Portugal.

Upgrading the Informal Activities Within the Value Chain

A value chain “describes the full range of activities that are required to bring a product or service from conception, through the intermediary phases of production (involving a combination of physical transformation and the input of various producer services), to delivery to final consumers, and final disposal after use” (Kaplinsky and Morris 2002). Value chain analysis is “the assessment of a portion of an economic system where upstream agents in production and distribution processes are linked to downstream partners by technical, economic, territorial, institutional and social relationships. The effects of policies targeting specific production processes extend their primary impacts in the economic system according to the same path as the main inputs and outputs. Analysing impacts of policy options through value chains provides decision makers and other stakeholders with anticipated evidence on likely changes directly induced by policies” (Bellù 2013).

For development projects and their implementing partners aiming to the enhancement of the livelihoods for people dependent on the informal economy, it has become common to conduct value chain analyses if only for ensuring that the income-generating activities or the informal activities they try to support among the populations of beneficiaries are not condemned to fade away due to the lack of commercial opportunities. How to be sure that the skills training provided to the youth fit to the markets’ needs? How to be confident that the production for which inputs are purchased will meet customers beyond the tight local markets? Preliminary value chain analyses are a preamble accompanying baseline surveys that capture the situation of the targeted populations at the beginning of the project implementation.

The conceptual framework of value chains for the informal economy is traditionally oriented towards home-based workers subcontracted – through various intermediaries – by large outsourcing firms seeking cuts in their labour costs, maximisation of their profits and flexibility (see, e.g. McCormick and Schmitz 2002); that is what we have called “informal employment outside the informal sector” (see Chap.  2 supra). The informal workers within the formal sector are subcontracted directly by large companies, or indirectly through various intermediary enterprises on behalf of large companies. More broadly speaking “outworkers” are not generally working within the premises of large companies, but outside: in their own homes or in unsecure premises or also in secure premises but under harsh working conditions. The challenge of policies addressing the situation of these subcontracted outworkers in the value chain and their transition to the formal economy strive to make them benefit of more decent work conditions (see, for instance, Lin Lean Lim 2015 on the Ikea supply chain and the role of codes of conduct). Such situations are particularly vulnerable and likely to favour child labour as the home-based workers paid by the task will take advantage of being seconded by their children. The hard-working conditions and low pay that prevail in a system with subcontracting in cascade require actions in terms of obtaining decent work conditions through organisation, bargaining and social dialogue and on the other hand in terms of sensitisation towards enforcement and reinforcement of more efficient corporate social responsibility, making large companies accountable for the working conditions of the workers they hire, even indirectly through subcontracting, giving voice to consumers and their representative organisations. In Asia and Latin America, subcontracting of informal workers is widespread. Although these forms of labour relationships also exist in Africa, especially in Northern, Southern and Eastern Africa, value chains in these regions are above all relating to agriculture and primary products, including export crops where informal smallholders are equally concerned. And in such cases, the value chain is also a matter of contracting.

Similarities can indeed be found between outworkers at the bottom of industrial value chains and farmers at the bottom of agricultural or agri-food value chains. The outworker in the garment industry may own his/her sewing machine and be provided with raw materials by the contractor. In the same way, dairy-processing companies may provide farmers owners of land with cows and various inputs. “The contract farmer is the most popular one (…). During the contract, the farmers receive the small cow, feed, medical treatment from the milk processor. They nurture cows in their own land and sell the raw milk to the same milk processor. The contract farmer plays an assembling role and gains the assembling profit, which is usually low. This type of farmer appears in Ho Chi Minh City” (Nguyen Viet Khoi and Tran Van Dung 2014). It could be said more clearly: farmers become quasi-wage earners, exactly like the garment outworkers, and they come to consider themselves as such, rather than working for their own account, all the more so as they are often closely tied up by debts. In Ethiopia or Zambia, or more generally in sub-Saharan Africa, the milk and dairy products value chain is a challenge (Abdulsamad and Gereffi 2016) raising concerns about collection of milk from a huge number of breeders, about preservation and cold maintenance all along the chain, guarantee of hygiene and unfair competition with multinational firms that benefit from production subsidies in developed countries. But it can also show a very high potential.

As to the informal sector segment of the informal economy it is by no means an isolated set of activities that would operate autonomously. Many informal activities operate in connection with the global markets, for example, waste pickers, whose recycling work and recycled materials may find a second life on international markets. Informal workers are also diverse. In most part of the developing world, the informal self-employed predominate over the informal paid employees, but the home-based workers paid by the task are also likely to be part of value chains, as well as the very small producers or gatherers or collectors, such as the shea nuts producers in Ghana (see infra) or the milk and dairy products producers. Value chains policies or strategies are not per se policies or strategies fostering the transition to the formal economy: they can be instruments that aggravate the working conditions of the poor if they are not accompanied or implemented by institutions dedicated to this transition and to the enhancement of the livelihoods of people dependent on the informal economy. The insertion of informal workers into value chains may be synonymous of long hours and hard conditions of work for low wages or low rewards, whereas the inclusion into international markets may also provide new opportunities for small own-account producers and more favourable environment for the development of new businesses, innovative processes and better working conditions. Climbing up the value chain or expanding share in the value chain is a common strategy for enhancing the livelihoods of vulnerable populations dependent on the informal economy, especially when it is about agricultural or other primary products, or waste management. Contract farming is the equivalent of subcontracting in industries (Box 4.1).

Box 4.1: An Interesting Good Practice in Value Chain by a EU-Funded Project “Market Access Through Cooperative Action” Implemented by Ghana-PlanetFinance

The example of shea nut and butter producers is interesting in this regard. Shea nut is the fruit of a tree that grows in the bush of the Sudano-Sahelian region in sub-Saharan Africa. Shea nut gathering and processing is an exclusively female activity. At the top end of the value chain are very expensive cosmetics. Giving more space and value to the bottom end of the chain has been the objective of various development projects in Western Africa. These projects build on a better dissemination of price information (through mobile phones), bulking of the quantities gathered and processed and improvement in quality. So the intervention on the value chain is, on one hand, a matter of organising, coordinating, skills training and upgrading and raising awareness. On the other hand, it is a matter of infrastructures, equipment and change in obsolete production processes and access to credit.

In Ghana, PlanetFinance (a French organisation of the social and solidarity economy) supported poor rural women shea producers who take their margins from collecting shea nuts, removing pulp and drying them, to perform additional activities in the value chain. Such activities included trade, gathering the products in bulk and increasing efforts to meet the quality and the quantity demands of large buyers. The objective was to capture a more important additional value in the chain through (1) an increase of the quantities produced (improved productivity, increased storage, sales at appropriate times when prices increase), (2) bundling volumes and (3) an improvement in quality. This type of strategy usually requires multipronged actions such as (1) organising, (2) sensitisation, (3) education and training, (4) grant of small loans through microcredit, (5) use of ICTs to access market information and manage operations and transactions at the bottom of the value chain and (6) building contractual relationships with international buyers or upper actors in the chain.

Production prefinancing and warehousing services have an important impact on the quantities produced. Collective selling undermines the inability of producers to commit to future price levels. This is why, in the course of the project, a creative approach to improving chain governance was implemented. A social private company (the Shea Star Ltd.: SSL) was set up in which the women have shares (through Star Shea Network, SSN). SSL offers marketing services to the numerous member groups, searches international markets for nuts and butter buyers and takes charge of the commercialisation of the shea products that the women sell in bulk. This approach enables progress on increased savings and investments. SSL also managed to process refined shea butter through a tolling arrangement in Europe before sale to final clients. This significantly increased the volume of the unrefined shea butter that women were able to sell. SSL plays a major role in supporting and assisting women to fulfil the protocols for fair trade, organic and traceable shea products, as well as in providing them with some key inputs such as packaging and prefinancing. Transparency in the distribution of value-added shares between SSL and women producers is ensured during the associations meetings. Community association members participate in the negotiation and distribution within their network. They also supervise the quality of nuts and butter through a quality assurance system and participate in the aggregation of products at approved warehouses. Occasionally, groups declined to process particular butter orders due to less motivating market prices. In other cases, they bargained to receive higher prices thus proving their empowerment in analysing market prices.

Women producers can still sell their production to local markets or other buyers but are committed to the arrangements with SSL. This is because bulk selling enables them to put their earnings to good use such as for the payment of school fees, the purchase of household assets, working and farming tools. Despite its holistic approach, the women’s associations and the project missed however making arrangements with some support services such as transporters, owners of donkey carts, tricycles, “loading boys” who could have strengthened their place in the value chain.

Regarding the question of whether the social enterprise model is working well, one could state that women producers are not always able to meet all orders from buyers. But when this happens, they must buy nuts or butter from other women outside their community groups. This has resulted in interesting cascading effects because the required quality from the outside women pushed the beneficiaries to share with them their improved practices.

Organising the Populations Dependent on the Informal Economy

Organising is at the core of the actions and policies designed to enhancing the livelihoods of populations dependent on the informal economy. Whatever the angle under which the question is apprehended, organising is the way and means to address it. Organising aims at obtaining the recognition of informal workers’ rights and supporting the communities of working poor. Sooner or later, all projects intervening in the field come to the organisation of the populations they support, because organising is key for financing, for extending social protection, for increasing its share in the value chain and more generally to gain visibility, voice and self-esteem and confidence.

Organising Is Key for Financing

Many community-based organisations are created and implemented in order to initiate saving and lending groups. Pooling resources helps increasing access to financing. They are a manifestation of the strength resulting from organising. These grassroots organisations are typically the background upon which public actors and/or civil society organisations can build broader policies towards delineating more ambitious strategies for supporting microbusinesses or cooperatives, or achieving universal health or social protection coverage, or more generally transitioning from the informal to the formal economy.

Organising is key for extending social protection. In the informal economy where most workers are self-employed, community-based organisations gather into larger saving and lending groups, which are a first step towards regular and adapted contribution to mutual funds ensuring health coverage and other risks that fit with the needs of populations. Governments as well as other actors in the field can help promoting these kinds of organisations.

Organising is key for being taken into account as a player in the value chains. Seizing opportunities in value chains requires from producers at the bottom of the chains they become organised. Community-based organisations eventually supported by government actions or NGOs are generally the starting point towards increasing quantities collected and quality. These are the required conditions to be in a better position to negotiate with intermediaries or multinational firms in order to receive better prices and gain more room in the value chains.

Organising is key for gaining visibility and voice and having their rights recognised. “We Are Poor But So Many” is the title of a famous book written by Ela Bhatt (2006), the founder of the Self-Employed Women Association (SEWA) in India. Collective action is the origin and purpose of trade unions and employers’ associations in the formal economy. The informal economy operators and workers need to follow the footprints of their predecessors in the formal sector, who can selves help in this regard.

Organising is key for gaining self-esteem and confidence when facin public authorities. Not only numbers but also self-confidence is necessary to gain voice and visibility. One among recurrent difficulties encountered by populations dependent on the informal economy, especially women (but not only), is their shame when posing their problems or requests to the administration. Organising is a means towards acquiring self-esteem and confidence, with life skills attached to behavioural experiences in public when organising collectively around the main issues faced by the community of belonging.

Formal workers have their trade unions and employers their own organisations. Each on their side, these organisations have opened their eyes and increased awareness about the informal economy, and both have attempted to open to the self-employed as well as to the informal workers (for the trade unions), with mitigated success. Early since the first discussions that paved the way to the adoption of the ILO Recommendation 204 on the transition from the informal to the formal economy, the trade unions engaged into the support and coaching of workers’ cooperatives and other types of associations of informal workers.

As a matter of fact, it would be too much a top-down approach to pretend that the workers of the informal economy have not their own types or kinds of organisations. Many self-help groups long existed among vulnerable populations through which they exchange workforce (for instance, for cropping in peasant societies) or they save their meagre daily receipts for further access to credit (for instance, in these rotating systems of credit called “tontines” in Western and Central Africa or “merry-go-rounds” in Eastern and Southern Africa (see Chap.  5 infra). Similar forms of associations also exist in Asia. In other contexts, some kinds of cooperatives continue to exist that have been implemented, for instance, in rural areas in order to facilitate the delivery of fertilisers or other agricultural inputs and the outflow of crops. Of course, some particular categories of workers, such as the domestic workers or the home-based workers, are especially deprived of any kind of grassroots organisations, due to their individualistic and isolated modes of production. Except in such situations where the creation of grassroots organisations is a fundamental starting point, in many other situations, the action regarding organisation will therefore be a support to pre-existing forms of organisations in order to strengthen them and to disembed them from their possible blockages or from their lack of resources.

Two types of actions can be distinguished towards the organisation of vulnerable populations: a first and important one, which is illustrated by organisations such as SEWA (the Self-Employed Women Association) or WIEGO (Women in Informal Employment: Globalizing and Organizing), is the attempt to intervene at global (regional, national and international) and political levels in support of the recognition of informal workers’ rights. Examples of such actions refer to workers such as waste pickers, domestic workers, street vendors and transport workers, in other words informal workers who are not geographically located in places where they can meet together and who are especially vulnerable. Another type of action towards organising informal workers refers to local or sectoral development projects – donor- or government-funded – that try to rely on or revitalise pre-existing self-help groups in order to help communities in self-financing or contributing to social protection schemes or more generally giving visibility and voice, confidence and self-esteem.

The lack of legal protection as well as of social protection is a characteristic of workers in the informal economy because of the absence of recognition by policymakers and more generally by political authorities and also because of the absence of suitability of their situation for unionisation and collective bargaining (Chen et al. 2015; Spooner 2013; Schurman and Eaton 2012). In their paper for the Human Development Report 2015, Chen et al. (2015) emphasise the need for informal workers to organise in order to overcome such structural disadvantages, and they note that they “are increasingly self-organizing or getting organized into unions, cooperatives, or associations” and that such organisations “have engaged in collective action of different forms: bargaining, negotiating and advocacy, mobilization and campaigns, production and marketing, and mutual aid and self-help”. The objective is to increase voice collectively through organising and representation in policymaking, rule-setting, collective bargaining or negotiating processes.

Two major actors in organising the informal workers: SEWA and WIEGO. Two institutions have been particularly active in the organisation of informal workers in the recent past and are still very active, the Self-Employed Women Association (SEWA) and the Global Network WIEGO (Women in Informal Employment: Globalizing and Organizing). Although dedicated to the cause of poor women, these two institutions have gone far beyond the support of poor women workers.

Funded in the 1970s by Ela Bhat in Ahmedabad (India) as a set of cooperatives, the Self-Employed Women Association was recognised as a trade union in 1983, having gain affiliation to the International Union of Food, Agriculture, Hotel, Restaurant, Catering, Tobacco and Allied Workers. This was an important landmark as it meant for the first time that informal self-employed workers were recognised within the trade union movement as workers and as such with a right to form their own trade unions. With today more than 2 million members, SEWA is the largest trade union of informal workers in the world and pursues a joint strategy of struggle (collective bargaining, negotiations, campaigns and advocacy) and development in financial services (it is a major micro-finance institution), social services, housing and basic infrastructure services and training and capacity building. Not only SEWA organises its members in trade unions, but it also helps them to form cooperatives or other kinds of associations at local level as well as State or national federations (Chen et al. 2015). By many aspects, SEWA has “pioneered creative approaches to unionism, challenging the conception of what a union should be and do” (Bonner 2006). As a trade union, SEWA struggled towards the adoption of the Convention on Home-Based Workers in 2008 and the Convention on Domestic Workers in 2011, and as a cooperative, it is organised around four sources of security/insecurity: work, income, food and social security.

WIEGO was founded in 1997 with SEWA as one of its founding members. It is an international network of membership-based organisations, activists, practitioners from development agencies, researchers and statisticians that focus on securing livelihoods for the working poor, especially women, in the informal economy. It aims at creating change by building capacity among informal worker organisations, expanding the knowledge base and influencing local, national and international policies. One of its main objectives has been to support the development of membership-based organisations (MBOs) – trade unions, cooperatives and worker associations – that are democratic and representative, as well as national and international alliances and networks among which the main are the International Domestic Workers Federation (IDWF), HomeNet (for the home-based workers) and StreetNet International (for the street vendors).

Main Pillars of Policies Designed to Tackle the Informal Economy: Social Protection, Skills Enhancement and Financing

Beyond interventions at the macro-level through legislation, regulatory systems and creation of enabling environment, the tools and instruments used by the donors in their interventions aimed at the informal economy mainly consist in the provision of training, micro-finance, access to markets and services, advocacy, representation and voice. Through their main components and variants, the policies tackling the informal economy can be analysed around three main pillars that are social protection, technical and vocational skills’ enhancement and finance (especially micro-finance). Skills’ enhancement and provision of finance deal with the supply side of the informal production, seeking to improve or develop the means of production, increasing the manpower’s skills, or a more capital-intensive organisation of the micro-firms. Social protection on the other hand is a different approach that could be seen as intervening further to the supply side approach. As a matter of fact, it has often been undertaken independently and even prior to policies addressing the improvement of the means of production. By many aspects, a more universal social protection system can be considered as an efficient means of increasing the productivity of the workforce, making it healthier, more confident in the future and in a smoothed relationship with the employers.

Social Protection

The expansion of social protection is key for policies aiming at encouraging the transition from the informal to the formal economy. As early as 2011, the African Union adopted a Social Protection Plan for the Informal Economy and Rural Workers (SPIREWORK), “in recognition of significant contribution of the informal economy to GDP, jobs creation, poverty alleviation, social cohesion and political stability in Africa”. The African Union acknowledges that “social protection (…) has the potential to be the backbone of any strategy towards the modernization or (…) formalisation of the informal economy” (African Union 2011). Universal social protection is goal 1.3 of the SDGs: “Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and vulnerable” and there are many other related targets as shown in Box 4.2.

Box 4.2: Other Social Protection Related Targets Goals

  • Target 1.5: “Build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social and environmental shocks and disasters”

  • Target 3.8: “Achieve universal health coverage, including financial risk protection, access to quality essential health-care services and access to safe, effective, quality and affordable essential medicines and vaccines for all”

  • Target 5.4: “Recognize and value unpaid care and domestic work through the provision of public services, infrastructure and social protection policies and the promotion of shared responsibility within the household and the family as nationally appropriate”

  • Target 8.8: “Protect labour rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment”

  • Target 10.4: “Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality”

  • Target 13.1: “Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries”

  • Source:

Various coalitions, partnerships and initiatives have emerged to deal with these issues: the Inter-agency Social Protection Assessments ( that defines social protection as a set of policies and programs aimed at preventing or protecting all people against poverty, vulnerability and social exclusion, and designed a Core Diagnostic Instrument (CODI), in partnership with the major international institutions and bilateral donors, the EU Social Protection Systems Programme (, in partnership with OECD and Finland or also (

The World Bank and the ILO also decided to gather their efforts in a Universal Social Protection Initiative towards the achievement of SDGs goal 1.3 (World Bank and ILO 2015). “Achieving universality would facilitate the delivery of the World Bank’s corporate goals of reducing poverty and increasing shared prosperity and the ILO’s mandate of promoting decent work and social protection for all” (and could we add now, the transition from the informal to the formal economy) (Box 4.3).

Box 4.3: The Social Protection Floors

In 2012, the International Labour Conference adopted recommendation 202 on social protection floors:

Social protection floors are nationally defined sets of basic social security guarantees that should ensure, as a minimum that, over the life cycle, all in need have access to essential healthcare and to basic income security which together secure effective access to goods and services defined as necessary at the national level.

Recommendation 202 applies to all, including workers in the informal economy.
National social protection floors should comprise at least the following four social security guarantees, as defined at the national level:
  1. 1.

    Access to essential healthcare, including maternity care

  2. 2.

    Basic income security for children, providing access to nutrition, education, care and any other necessary goods and services

  3. 3.

    Basic income security for persons in active age who are unable to earn sufficient income, in particular in cases of sickness, unemployment, maternity and disability

  4. 4.

    Basic income security for older persons


As anyone can easily imagine, such systems have difficulties to become universal because in many countries, paid employment represents a small share of the active population: this is particularly the case in countries where agriculture and/or informal self-employment is widespread. Although the contributory systems have been extended to self-employment and to many if not all kinds of occupations, the coverage of social security fails to be universal. This is why social assistance programmes (“social safety nets”) have been generalised. They provide targeted populations with coverage for some of the risks at the costs of the taxpayer (redistributive systems).

Moreover, in the absence of State support, vulnerable populations may quasi-exclusively rely on self-help groups that can provide assistance to their members in need. Extended families provide support to cover health expenditures, unemployment, and other benefits and allowances. It will be shown (Chap. 5 infra) that in sub-Saharan Africa in the 1980–1990s, for instance, monetary and in-kind transfers between households – including remittances – could represent as much as 25% of the average household income that is a share equivalent to social expenditures or public transfers in European countries.

Social protection systems thus have three dimensions:
  • An insurance dimension that relates to the formal sector

  • An assistance dimension that relates to the most vulnerable populations uncovered by social security

  • A community-based dimension

Safety nets are diverse: in 2015, the World Bank assessed the state of social safety nets at world level (World Bank 2015). From price subsidies on basic goods or cash transfers that have sometimes become conditional to infants’ vaccination and children’s schooling (behavioural conditions) or subject to several criteria (such as income levels or demographic or socio-economic characteristics) to the provision of a number of workdays through labour-intensive public works, there is a huge variety of safety nets. The most well-known and successful of these conditional cash transfers programmes is the Brazilian “Bolsa Familia” that dramatically lowered the national poverty rate. Such schemes are, however, often criticised for their deficient targeting, especially when non-conditional.

The World Social Protection Report 2017–2019 (ILO 2017) recalls that according to ILO estimates, in 2015 “only 29% of the working-age population and their families across the globe had access to comprehensive social security systems. In other words, almost three-quarters, or 71 per cent, of the world’s population, about 5.2 billion people, do not enjoy access to comprehensive social protection”: A global figure that is close to our estimates for employment in the informal economy. This is why the reflexion on social protection is at the core of the policies addressing the informal economy, especially the policies for the transition to the formal economy. In this regard, civil society organisations and NGOs implementing donor-funded projects have an important role to play in strengthening the capacities of public institutions as well as in reinvigorating traditional self-help groups towards ensuring a more effective social protection.

Capacity strengthening is on the agenda of most development policies and projects. It applies to public institutions, private and community institutions as well as individuals. Capacity strengthening of public institutions can help meeting the goal of formalising the informal economy by expanding its benefits to the most remote and vulnerable populations. Projects aiming at enhancing the livelihoods of vulnerable populations dependent on the informal economy have nonetheless found original ways and means of achieving the objective of expansion of coverage. This includes examples of national health insurance systems that combine organising small informal operators with providing outreach. It also includes incentivising local and central administrations in charge of the national health insurance system. The basic principle is that public service providers should go to the population to offer the said services and collect corresponding taxes or premiums instead of waiting for populations to come forward on their own.

Conducting outreach and incentivising local or central administrations (social security, health insurance services) to search and convince informal economy operators to register rather than wait for them to come and register on their own is a good practice that has been recently implemented in various contexts. In Ghana, for instance, the National Health Insurance System (NHIS) was established under the Act 650 in 2003 in order to “provide basic health services to persons resident in the country through mutual and private health insurance schemes”. Members receive a card, which enables them to go to hospital and benefit from general outpatient services, inpatient services, oral health, eye care, emergencies and maternity care, including prenatal care, normal delivery and some complicated deliveries, without direct payments. In 2008, nearly 54% of the population were covered, but vulnerable groups failed to benefit from the scheme (Abebrese 2012) (Box 4.4).

Box 4.4: An Interesting Good Practice in Expanding Social Protection by the EU-Funded Project “Market Access Through Cooperative Action” Implemented by Ghana-PlanetFinance

The NHIS was also successfully involved in facilitating the registration and membership card renewal of the EU supported project’s beneficiaries (already mentioned in this chapter under the Box on value chain). The project focused, among other aspects, on market access of women shea producers through cooperative action. Using a combination of sensitisation, logistics support and techniques for facilitating registration and organising women producers, it was possible to reach the goal of improved access to these public health services. Meetings with the staff of regional offices of NHIS were used to convince them to participate in sensitising clients on the importance of the NHIS and help them understand that the project valued their role as service providers. Logistics support, such as vehicle and a public address system, was also provided to facilitate their travel to the sites for mass registration.

 NHIS staff gave presentations of the role of their institution and the benefits for the population in the project field sites. The NHIS staff was asked numerous questions since many women were unaware of the existence of such health insurance schemes. They also had to listen to complaints about non/late delivery of cards, difficulties in renewing cards as well as about the frustrations that card bearers encountered at various delivery points. This exposure helped make the NHIS staff more aware of the harsh conditions of remote and vulnerable populations.

Techniques for facilitating registration included getting women to make contributions in instalments towards registration and renewals. It also included scheduling bulk registrations in the communities thus extending registration operations beyond the project’s beneficiaries through a cascading effect. Project officers also contributed by picking up the expired cards of women and bringing them to the NHIS offices. Women producers have been organised in community social funds (CSF) that were connected to micro-finance institutions to obtain financial support for their production activities but also for NHIS registration. This allowed the CSF members to share their health risks as they can pool resources together through the CSF to access healthcare. An increased attendance to health facilities has been observed with earlier treatment of sicknesses/diseases. NHIS officials now travel to renew expired cards and register new clients as a result of the collaboration between the NHIS and the shea associations. The good practice described is an illustration of the role that civil society organisations can play in complementing government institutions to fulfil development agendas such as the achievement of universal healthcare services.

The logistical support provided may raise the question of the sustainability of the good practice. It is up to the NHIS administration to incentivise its staff through the achievement of quantitative goals for new registrations and renewals.

For WIEGO (Women in Informal Employment: Globalizing and Organizing), the international network dedicated since 1997 to empowering informal workers and securing informal livelihoods, social protection is a high priority for informal workers who list, after the increase and sustainability of their income, access to health services, child care and savings/security for the old age, among their highest priorities. Based on its wide experience, WIEGO considers that informal workers should be integrated, wherever possible, into formal schemes, rather than being covered through small schemes especially designed for them. Short-term safety nets are definitely not enough, and social protection for informal workers must be mainstreamed and be a long-term commitment ( Although not fitting with such requirements, safety nets are still, in many countries, the only policies meant to provide the poor with a source of income. At world level, more than 1.9 billion people are covered by social safety nets (and among them, more than 526 million people are enrolled in the 5 major social safety nets). Globally, only one-third of the poor are yet covered. In average, a developing country runs about 20 different safety nets. Total spending in social safety nets totalled twice the amount needed to provide every person living in extreme poverty with an income of 1.25 US$ a day. However it represents much less than the amount of subsidies on fuel, which are possibly assumed to have crowded out public spending on social safety nets and pro-poor policies.

The assessment established by the World Bank shows that in 2015, school feeding and unconditional cash transfers were the most widespread programs with 131 and 130 countries, respectively (out of 157), followed by public works (94 countries), unconditional in-kind transfers (UCTs, 92), then conditional cash transfers (CCTs, 63) and lastly fee waivers (reduced medical or educational or housing/utilities fees, 49). By the number of beneficiaries, Bolsa Familia is the most important of the CCTs (45 million representing 24% of the population) and Di-Bao (China) for the UCTs (75 million), whereas India comes first for the public works with MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act, 58 million beneficiaries). It is admitted that the typical cash transfer programs in lower-income countries do not provide adequate income support as they cover only 10% of the average consumption of the poor. Especially the beneficiaries of public works programs that provide workdays at special periods of the year cannot be considered as having decent jobs and being covered by social protection. These types of programs are not therefore a means of transitioning from the informal to the formal economy.

The BRAC’s graduation approach targeting the ultra-poor is one of such examples and presents the advantage of a strong and reliable empirical evaluation (BRAC 2016). BRAC stands for Building Resources Across Communities (initially Bangladesh Rehabilitation Assistance Committee). It is the largest non-governmental organisation for international development in the world and is said to reach more than 126 million people in 14 countries. In 2002, BRAC developed the Targeting the Ultra-Poor (TUP) Programme through a graduation approach after noticing that the social safety nets failed to reach the extremely poor. The approach addresses the social, economic and health needs of poor families simultaneously by combining the satisfaction of immediate needs with longer-term interventions in life and technical skills training, asset transfers, enterprise development and savings towards more sustainable livelihoods. Selected through a participative process, the beneficiaries are given a productive asset chosen from a list, and the corresponding training, as well as life skills training and consumption support during a given period. They have access to savings schemes and health services. All these supports are supposed to provide the households with a “big push” for a self-employment activity. The program is costly, reaching an amount per household equivalent to the household consumption as measured by the baseline survey. In fact, BRAC implements two approaches, one for the Specially Targeted Ultra-Poor (STUP) who receive the productive asset and the second for the Other Targeted Ultra-Poor (OTUP), marginally less deprived, who receive a soft loan for acquiring the asset.

In Bangladesh, the program reached more than 600,000 households, and its replication was decided in 20 countries. In 2006, the approach was adapted and tested in eight countries. A randomised evaluation through control trials was conducted in six of them (India, Pakistan, Ethiopia, Ghana, Honduras, Peru), the results of which were published in Science (Banerjee et al. 2015) looking at the progress at the end of the program and 1 year later. Measuring the impact of the program on ten key outcomes (consumption, food security, productive and household assets, financial inclusion, time use, income and revenues, physical health, mental health, political involvement and women’s empowerment), the study found significant impact on all of them, 1 year after the end of the project or 3 years after the transfer of the productive assets. And in five out of six countries, the extra earnings exceeded the program cost. The study concludes that the multifaceted approach is sustainable and cost-effective.

These remarks bring us back to the issue of taxation of informal activities (section “Taxing the informal activities” supra). Until recently and still often, social protection policies and fiscal policies were treated separately, and it is now widely admitted that they should be treated jointly. Observing that in some countries such as Ethiopia, almost 70% of the poor pay tax and that subsidies mainly benefit the rich, researchers have developed a new concept of “net social protection” (Lustig 2016a, b). According to them, analysing the impact of spending on social protection without the impact of financing on the poor is useless: When financing is added in the picture, the net effect of social spending on social protection can increase poverty. In Tunisia and Ethiopia, the first two deciles were found to be net receivers, whereas the others are net payers and in Ghana and Tanzania, all deciles were found to be net payers.

The discussion on transition from the informal to the formal economy is therefore inseparable from the discussion on social contract, social inclusion, citizenship and the payment of taxes. For some policymakers and observers, presumptive taxes are the means to bring as many people as possible into the tax system, while for others citizenship is not linked to the payment of taxes. Social protection for informal workers must be mainstreamed and be a long-term commitment, but good practices and lessons learned from projects have still a role to play in the implementation of such national policies. In this respect, national policies could play a role of coordination. Furthermore, inefficient bureaucracies, immersed in clientelist practices, cronyism and devoid of resources, need to be sensitised, incentivised and accompanied by grassroots organisations in order to operate their mutation, not to say their revolution: serving the people rather than having the people at their service.

Technical and Vocational Skills Enhancement

Originally, the informal sector was defined, among other criteria, by skills acquired on-the-job, outside the formal school system, most of its workers having no school level, even primary (ILO 1972). Since the early times of the development of the informal economy, when the acquisition of skills outside of the formal education system was a defining characteristic of informality, much water has passed under the bridge and in particular the proportion of population having completed primary and even secondary school has dramatically increased, including in the informal sector and in the informal economy at large.

Today many informal workers have by now a primary or even secondary level of education, without even mentioning the young unemployed graduates temporarily (if not permanently) earning a living in the informal economy. Nevertheless, the fact remains that informal workers generally lack the theoretical background and the skills that they could have acquired in the Technical and Vocational Education and Training (TVET) formal system. On the other hand, youth trained in the TVET formal systems lack practical experience acquired on the job, while people having worked in the informal economy struggle to access to formal recognition of the skills they have acquired. In some cases, the large proportion of the youth that learn a craft on the job is older that they were formerly, and, above all, they are more educated than their masters or the owners of the workshops. Consequently, the status of apprentice has changed and trainees rather than apprentices are demanding more than learning by the eyes (Charmes 1982); they need that their practice be strengthened by more theoretical knowledge.

Technical and vocational skills enhancement is therefore one of the major issues that should be taken into account in addressing the informal economy, for at least two reasons: on the one hand, on-the-job training remains the main provider of skills in the informal economy, and on the other hand, all the youth enrolled in TVET official programmes will not be absorbed in the formal labour market, and many of them will have to find their way within the informal economy. This highlights the strong interconnection between TVET provision and the informal economy on the following fields:
  • Recognition and upgrading of skills developed in the informal economy, training of informal trainers and upgrading of informal apprenticeship schemes

  • Access to higher-level skills training for improving the informal workers’ performance

  • Formal and informal TVET schemes enabling learners to develop entrepreneurship and start-up businesses to come out from poor wages and insecure jobs

TVET thus stands among the major domains of State intervention for improving the performances of informal operators, in terms of productivity and quality. The challenges lay in the place and role given to apprenticeship and the ways and means by which formal TVET systems strive to upscale the traditional-informal systems. Recognition of skills informally acquired is also a challenge as well as the adaptation of formal systems to match the new needs of the global economy.

Two implications result from these observations: firstly, it is required from formal TVET systems that they ensure the complementation and recognition of skills acquired on the job in order that those skills can match with the formal sector’s needs so that the informal apprentices are not locked in the informal economy. And secondly, the young trainees of the formal TVET systems should be provided with entrepreneurship skills that would allow them creating jobs of their own and finding their way through private initiative, rather than counting on wage jobs that are lacking on the formal labour market.

Today one of the most important issues that transition policies from the informal to the formal economy are facing is the absence of recognition of skills informally acquired, a precondition that is nevertheless necessary if a start is to be given to mobility from the informal to the formal enterprises. Furthermore, a recurrent criticism regarding TVET systems is their lack of adaptability and flexibility (especially as regard updating and ability to respond to the most sought needs). In many countries, the main problem with the official TVET systems is that they are often accused of producing types of qualifications that are not adapted – or no longer adapted – to market needs. That is, the types of training do not match the employers’ demand for different types of skilled workers. As a result, graduates of formal TVET institutions often have no other recourse than finding or creating a job in the informal economy. Employment in the informal economy is thus fed by the outputs of the formal TVET system that do not fit with the qualifications required in the labour market. At the same time, individuals who have completed informal systems of apprenticeship or skills training are prevented from finding jobs in the formal sector due to the absence of formal recognition of their training. Thus TVET formal systems should not be designed only to supply the formal sector with the trainees that it requires but also to improve the productive capacities of the larger number of informal workers. The paradox that TVET systems are facing is that informal on-the-job trainees often lack the theoretical background they deliver and should have access to their teachings, whereas at the same time, these formal systems lack opportunities of actual on-the-job practices and experiences in entrepreneurship for their trainees in the real conditions of labour markets dominated by the informal economy: practical experiences offered to formal trainees are often limited to large and medium enterprises rather than micro and small enterprises where they could be confronted to the real problems of entrepreneurship.


Traditional apprenticeship has played a major role in Africa: in Northern Africa with craftsman guilds and their influence on all industries and in sub-Saharan Africa on ethnic or cast basis. With the modernisation process, the system of traditional apprenticeship has lost weight but remains important in absolute numbers. Paradoxically, the importance of apprenticeship in the total labour force is less well-known than it was some decades ago. The reason is that, more and more often, labour force surveys have applied the legal minimum age for defining the labour force, whereas the measurement of child labour was sent back to dedicated modules or surveys, which did not systematically collect information on status in employment. Still the number of apprentices is admittedly high in Africa, and apprenticeship remains a major entry to the labour market and a major provider for self-employment. One of the advantages of work-based learning that characterises apprenticeship is to facilitate the transition from learning to work by ensuring a better understanding of the workplace culture and the acquisition of good work habits or in other words a good proficiency in all dimensions of the craft, not only technical but also in entrepreneurship skills. The drawback is that apprenticeship often hides poor wages and work conditions, as well as lack of basic occupational health and safety conditions.

The official recognition of diplomas and training certificates is a long and bureaucratic process in most countries. It can take years with a low probability of success and with considerable costs for individuals and institutions. An interesting good practice for projects on TVET consists in negotiating the certification of acquired skills with employers’ associations. Prioritising the development and implementation of systems of recognition of informally acquired skills since it facilitates mobility from the informal to the formal economy is a good practice that was implemented in Uganda by SwissContact Germany in a EU-funded project “Validation of Non-formal and Informal Training”. The “Proficient Acquired Skills” (PAS) document was developed and implemented in partnership with the Ugandan Association of Private Training Providers (UGAPRIVI). The PAS certifies the skills and competencies of an individual in a particular trade and assesses the strengths of the holder as well as his skills gaps.

A large-scale and low-cost non-formal educational and training approach of “Local Skills Development” and DACUM was developed. Through a participatory process and method (DACUM for “Developing A CUrriculuM”) for describing any occupation in terms of duties, tasks, knowledge, skills and traits, in relation to eight trades, hairdresser, tailor, motorcycle mechanic, motor vehicle mechanic, welder, metal fabricator, plumber and carpenter and joiner, the project aimed at providing appropriate training opportunities to the unemployed and potential or actual workers in the informal economy. The method developed private sector driven and innovative non-formal modes of skills training and their accreditation, in partnership with several employers’ associations such as the Ugandan Small Scale Industries Association (USSIA) or the Ugandan Hair and Beauty Alliance (UHABA). It included interventions in capacity building, institutional development, coaching and technical assistance of training providers, stimulation of collective action of workers and employers for linkages and network development, career guidance, pre-vocational skills training and advocacy.

Once the assessments for the selected trades are completed and the qualification process is in place to deliver the PAS document, it is no longer depending on human and financial resources. The provision of PAS documents is then a service that can be delivered without permanent costs: the costs of the qualification and certification processes are charged to the beneficiaries. The online Worker’s PAS database captures the personal data with corresponding assessment results of each trainee to be promoted among potential employers. The PAS progressively gained recognition through approval of the Directorate of Industrial Training and became part of the Ugandan Vocational Qualification Framework. Among the main benefits and uses of the PAS, the facilitation of placements of trainees among USSIA member enterprises should be noted. Likewise the matching of identified skills with the needs of the labour market and the enhancement of employability of PAS’ holders through the demonstration of skills to clients are important factors. The access of small businesses to tendering is facilitated. In the psychosocial sphere, there is increased personal confidence of the holders, increased support from relatives and recognition in the community as well as better interaction with local/central authorities.


The positive role of micro-finance in enhancing the livelihoods of people dependent on the informal economy is generally recognised although some voices have begun to be heard about the risks of over-indebtedness. But the simple financing (not only micro-finance) of the informal micro-entrepreneurs by the banking system also requires to be tackled seriously if the transition to the formal economy is at stake. As a matter of fact, one of the main characteristics of the informal sector has always been not to rely on external sources of funding. Most of the microenterprises of the informal sector continue to start their activities with limited initial capital drawn from own or family resources. The small amount of initial capital that allows the start-up of an informal microenterprise mainly originates from own or family savings. Informal operators rarely seek credit at the initial stage. They do, however, regularly buy on credit from their immediate and daily/weekly providers of the goods they sell or transform. Nevertheless, the combination of tight needs with large numbers of operators constitutes a vibrant market and has been the basis for the development of micro-finance.

Micro-finance is defined as a set of financial services such as savings, microcredit, insurance and money transfer, adapted to the needs of low-income and poor persons (especially those who do not have bank accounts). Microcredit is not a usual loan; it is most often combined with others elements: the borrower benefits from tips that will help her/him use the borrowed money in the best way, among others, how to keep accounts, calculate a cost, comply with regulations and choose a particular approach or a project. For the World Bank, the amount considered as defining microcredit corresponds to 30% of the GDP per capita in a country (from 250 US$ in Madagascar to 400 US$ in Cameroon and 1300 US$ in Tunisia). Because they have no collaterals, the poor have no access to the official banking system (see De Soto 2003). In this sense, financial inclusion – the objective that micro-finance aims at achieving – may be seen as a dimension of social inclusion. It is currently estimated at a value of 60–100 billion US$.

Micro-finance has earned a major place in funding income-generating activities over the recent years. This is primarily due its financialisation – a process that consists in raising funds on the international capital market. This was, however, to the detriment of its value with respect to solidarity and it still far from satisfies the needs of the global poor (Box 4.5).

Micro-finance has long existed in traditional societies under the form of rotating savings/credit schemes or clubs (known as “tontines” in Western and Central Africa or “merry-go-round” in Eastern Africa, see Chap.  5 infra) to benefit their members. Important actors gradually emerged between the mid-1970s and the mid-1980s, including the Grameen bank that Nobel Peace Prize winner Mohamed Yunus founded in 1983. Others include the Self-Employed Women Association (SEWA)’s microcredit Bank based in Ahmedabad, Gujarat India. SEWA was founded in 1974 and has more than 2,000,000 members today. Such institutions are based on trust and solidarity and provide support to poor households, helping them in their income-generating activities. As of February 2018, the Grameen Bank, for example, present in 60 countries, has 8,951,000 members (96.1% women) and has cumulatively disbursed 17 billion US$ since its inception. Its outstanding loans are currently valued at 1694 million US$ for 11,039,705 borrowers as micro-entrepreneurs and 77,402 beggar members (benefiting from loans with zero interest rate), for an overall rate of recovery of more than 98%. Among the main features of microcredit is the high proportion of women beneficiaries. This is probably because many actors in the micro-finance sector target women but also because women are less likely to default on their loans than men. They borrow lower amounts than men and have a high rate of recovery for not so low interest rates (compared to formal loans).

New Actors and Financialisation of Micro-finance

In addition to these major and early actors in the field, Islamic micro-finance institutions have started to play an important role (especially in East Asia and in Middle East North Africa). Governments have become more and more involved in the financing of initial capital for the micro and small entrepreneurs, and it is a major dimension of their active policies of employment creation mostly targeting the young unemployed graduates. Governments may also engage in the provision of small assets and working capital for income-generating activities through programmes dedicated to poverty alleviation. Revealing itself profitable, microcredit has attracted international investors. A major change during the past decade has been the entry of micro-finance institutions into the capital market through partnerships with international banks, investors and investment funds. These have started to invest in the micro-finance market in search of profit and changed the overall landscape of micro-finance institutions.

The Search for Profit Has Progressively Taken Precedence over the Solidarity Motivation

There are many observers now who think that financialisation of micro-finance institutions (MFIs) is not compatible with their basic values. All the more so because of stories of indebted farmers in India and elsewhere who committed suicide because they were not able to repay their debts. These stories have made the headlines and suggested that trust and solidarity have lost ground to these newcomers in search of profit so that it is difficult to say if it actually creates wealth or, on the contrary, if it encourages indebtedness (see, e.g. Guérin 2015). However these micro-finance institutions in search of profit can also play a role in supporting the poor and vulnerable people dependent on the informal economy, even if they firstly seek after the most rewarding loans.

Box 4.5: Supporting Micro-finance Institutions for Enhancing the Livelihoods of Vulnerable People Dependent on the Informal Economy: Good Practice by the EU-Funded Project “Market Access Through Cooperative Action” Implemented by Ghana-PlanetFinance

It is generally taken for granted that micro-finance institutions are by nature dedicated to the support of the poorest and the most remote populations. This is not quite true in practice, however. Micro-finance institutions are usually not (or no longer) non-profit institutions. They are institutions like others and consequently often do not address the concerns of the poorest, particularly those of poor rural women engaged in gathering and agro-processing activities. Like other institutions, MFIs need motivation, support and training. They need to be sensitised and incentivised to reach the poorest population. They need to be strengthened to do so and develop new credit products. The project supported not only women producers in the shea nut and butter value chain but also MFIs as one of the actors of its holistic approach to development. Building on earlier initiatives of MFIs and the experiences of beneficiary communities, the project helped MFIs to target poor rural women engaged in agro-processing and whom traditional financial institutions normally avoid. One of the actions carried out was to provide technical support to partner MFIs to refine and develop new credit products for clients. Such new products enabled clients to acquire appropriate business inputs, pay the premium of the NHIS (health insurance) and stabilise their incomes throughout the year. Several lessons were learnt from previous experiences: (1) MFIs providing group loans need to develop specific internal competences in order to effectively provide financial services in a value chain framework; (2) MFIs sustainability also depends on their capacity to offer better timely loans in relation to the shea value chain financial needs; and (3) MFIs can feel harmed by some actors in the value chain (e.g. bulk buyers) who have the potential to offer more competitive prefinancing services. Also, the burdening of MFIs loan officers limits the effectiveness of their actions.

 The participation of MFIs in the formation of production groups was decided in order to increase sense of ownership and willingness to provide financial services. It was also decided to improve their efficiency through the provision of training in specific software for the management and monitoring of the loan process. A total of four loan products were developed and used: nuts working capital loan, butter working capital loan, roaster loan and grinding mill loan. The use of roasters has led to an increase in quality and productivity in butter processing. The project organised Training of Trainers (ToT) workshop on group dynamics and business management for nine staff of the two MFIs. The project supported the activities of the MFIs involving meetings, workshops and experience sharing. The MFIs indicated that this has been very useful in carrying out their planned activities.

With PlanetFinance support, the MFIs have been able to provide their staff with motorbikes, laptops and micro loan management (MLM). Staff of the MFIs described this assistance as highly beneficial because it provided them with an enabling environment to operate. The MFI staff explained that their capacities in key areas such as loan management were improved. The MFIs took the initiative to conduct needs assessments after which loans have been disbursed to women. Feedback from staff of the MFIs further shows that they used knowledge gained from the training to design and carry out follow-up monitoring. They indicated that they have been able to raise some additional funds from other sources to support product refinement and new products development for clients. The MFI staff also provided support to the project through business management training for some communities and monitored the development of women’s groups through their field visits. The training was facilitated through interactive lectures, group discussions and presentations as well as individual assignments focussing on group by-laws, leadership roles, conflict resolution and identifying shea as a business, increasing income through shea and selling to large-scale buyers.

Extension of Micro-finance and Potential for Growth

The number of users (borrowers, members) of the services of micro-finance institutions is estimated at 200 million at global level. This large number is still to be compared to the three billion poor. The fact is that the majority of informal sector enterprises and income-generating activities that mainly mobilise the family network remain dependent on usurers. These figures also indicate that ways and means for the transition from the informal to the formal economy have to be found and that a larger access to funding is still an issue to be solved. Micro-finance can be a solution for such a transition.


The size and growth of the informal economy as currently defined in terms of employment and contribution to GDP are too important to remain left to their spontaneous development all the more so as the characteristics of the related jobs are far from what could be expected from a rights-based approach. Moreover the potential of these economic activities could be enhanced as well as the living conditions for the informal workers provided that an enabling environment is created. The transition from the informal to the formal economy is henceforth on the agenda of many international agencies.

The various domains open for States’ and civil society organisations’ intervention have been explored since a long time and the review of policies benefit from many experiences in the field at macro (national), meso (regional) and micro (local, households/enterprises) levels. Taxation is the only one of these domains that is in the hands of the State. In all other cases, the micro-level experiences tested and implemented by CSOs (funded by international or bilateral donors) can be capitalised, adapted to local conditions, generalised and converted into national policies. Similarly, national policies can be supported, enhanced and improved at local levels, thanks to CSOs, particularly in contexts of scarce budgetary resources. By expanding the informal markets to new customers, the value chain policy framework is an efficient tool for increasing quantities, quality and productivity, which also mobilises actions of financing, training and organising.

For all actions designed to support operators and workers in the informal economy, organising is key for raising awareness, giving voice and empowering people usually kept aside by national policies. It is the necessary counterpart of fair competition with the actors of the formal sector who otherwise could be tempted to transform the crowd of informal self-employed into informal employees for the sole benefit of the formal firms. The poor are many and their number gives them the power of being considered as a powerful vibrant market for micro-finance institutions. These institutions can promote savings among the poor, not only for enabling them to access microcredit in view of satisfying their consumption needs but also for investing in productive equipment and furthermore for contributing to health insurance schemes.

Technical and vocational training as well as life skills training are also essential tools for consolidating the gains acquired in other domains such as financing or value chain. Furthermore the recognition of skills acquired on the job in the microenterprises of the informal sector is indispensable whether one wants the transition from the informal to the formal economy to be made smoother. Finally the universalisation of health coverage and of social protection in general (especially health coverage and old-age pensions) is a sustainable development goal adopted by the international community, and experiences in the field have shown that progress could be achieved in the expansion of coverage through micro-finance schemes.


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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Jacques Charmes
    • 1
  1. 1.IRD University of Paris DescartesParisFrance

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