My Beauty Best Teacher

Lauren Citrome in CIPE:

When businesses are informal, they do not have recourse to legal protection. When a corrupt official comes to collect a bribe, they do not have any formal means to contest. An informal business owner cannot easily grow his or her operations because without formal registration papers, there is less access to capital. If a business cannot use legal dispute-resolution mechanisms, there is increased risk for hiring employees outside of one’s family.
In many countries, however, prohibitive barriers to formalization keep entrepreneurs in the informal sector. For example, business registration offices may be located only in major cities and rural entrepreneurs cannot access them. Formalization may also entail an overly burdensome tax responsibility. In some cases, business owners lack the information and know-how to register their businesses, even if they wanted to do so.

More here

Ashoka Fellow "...Moussa Kane has begun to organize Mali's informal economy into a formal association that compiles data on the informal sector and provides basic services to impoverished entrepreneurs. The association provides startup equipment and in-kind loans to entrepreneurs and offers business and financial training to help small ventures succeed. His organization is the first company of its kind in Mali to be owned by its due-paying members, and it is financed and run entirely by members of the informal sector. Its services will be accessible to the approximately 40 percent of Mali's population involved in the informal sector...Although it provides basic sustenance to many, the informal sector is disorganized and risky. Members of the informal economy, like the street vendors that crowd Bamako's avenues, do not have access to loans, are harassed by the government for their occupation of unregistered public space, and are vulnerable to complete collapse in the event of an illness or accident. Furthermore, most "informal entrepreneurs" do not understand the essentials of bookkeeping, business management, and resource allocation, and are therefore unable to turn a consistent profit..."

An excerpt from Robert Neuwirth's Lecture 'The Extroverted City of System D' a contribution to the book Open City:

In Lagos, everything is informal. The bus system is informal—the government got out of mass transit business decades ago (though it has recently stepped back into public transport with a bus rapid transit line) and the system that includes more than 75,000 danfos was held together informally by the National Union of Road Transport Workers as one-part mass transit and one-part Ponzi scheme. One of the largest formal supermarkets in Lagos buys most of its product from informal wholesalers. Some major multinationals here distribute their products through informal networks. And informal merchants invest in the formal world.

Authorities in the city acknowledge that as much as 80 percent of the work force—and Lagos has between nine and 17 million inhabitants, depending on where you draw the boundaries and who’s doing the counting—is involved in the informal sector. The federal government also suggests that somewhere around 60 to 70 percent of the country’s economic activity derives in some way from the informal sector—and this means that, in aggregate, merchants like Prince Chidi Onyeyirim and Fatai Agbalaya are more important to Nigeria’s future than Shell, Mobil, and Chevron, the multinational oil giants that pump sweet crude from the Niger River Delta.

Rebecca Regan-Sachs of Next Billion interviewing Alex Shkolnikov of CIPE:

NextBillion: You have mentioned that CIPE works frequently with business associations to find ways to fight corruption. However, in many developing countries, a large segment of the business sector is informal. If these "shadow economy" enterprises don't have official association representation, how can they defend themselves against corruption?
Alex Shkolnikov: We've actually seen in a number of countries that informal sector associations emerge spontaneously to defend the rights of small business. They act as a self-defense mechanism. So if inspectors come in, you have an association that basically provides protection. They also provide market information, of goods and prices and stuff like that, but they really emerged as kind of a self-defense mechanism.

More here

Sanou Mbaye writing in Project Syndicate:

He speaks on the need to liberalize the remittance channels:

The effects of banks’ hijacking of national payment systems to service only the modern economy are compounded by the exclusive agreements that banks and money-transfer companies such as Western Union have signed with most African countries. These agreements lock out non-banking entities from the highly lucrative market for migrant remittances from the African diaspora, which remain a key engine of growth

Furthermore on how key it is to nourish the informal economies:

African states must now recognize that modernizing their informal sectors by integrating them into the modern economy can be a major development tool. Yet only a few countries have started moving in that direction. Nigeria has refrained from signing any exclusive agreements with Western Union and others, and its newly consolidated banking industry is making significant inroads across the region...

Arguing for the broader inclusion of more financial actors in national payment systems

Giving micro-finance institutions access to national and regional payments systems and electronic retail facilities will go a long way toward meeting the requirements of the retail and business sector in terms of banking facilities. It will also help facilitate access by the poorest to financial services, thus helping to reduce the high proportion of the un-banked population.

All of this will invariably spur development and integration of national financial systems and intra-regional trade. This will be a welcome development, because a large proportion of intra-regional trade is carried out by informal operators and small and medium enterprises that do not have access to the banking system. Moreover, economic integration and increased intra-regional trade are the best entry point into global markets for all countries.

More here

A recent study(PDF) on Financial Flows within West Africa made the following findings:

(1) presently, the aggregate value of these transactions may amount to US$2 billion annually in remittances from migrant laborers and perhaps as much as US$8 billion in trade settlements in the four countries.
(2) Overly restrictive government policies, the inconvertibility of the currencies in the region, corruption and traditional patterns have the effect of driving potentially legitimate business into the informal economy.
(3) Small and medium sized enterprises, in particular, have
difficulty gaining access to formal mechanisms and institutions that could normally provide business loans and financial settlement services. Concurrently, the region is vastly underbanked.
(4) Microfinance institutions and credit unions service a part of this informal market but they operate under financial regulations that make it difficult to service the full needs of their clients. The settlement of international transactions is particularly difficult.
(5) The use of technology may help provide options that will encourage greater use of formal systems

via West AfricanTrade Hub