The informal economy is typically depicted as unplanned, uncontrolled, and messy; as such, many governments have criminalised or ignored entrepreneurial endeavours in the informal sector.
Yet, a growing body of literature combined with experiences from enterprise development programmes, show another picture; highlighting the opportunities these informal micro and small businesses entail for the livelihoods depending on them, while recognising their importance for the local economy.
Individual stories and experiences
Have you ever felt that female informal entrepreneurs are often perceived the same by governments, private sector actors, and the aid sector? Probably, yes.
However, heterogeneity should be at the heart of all projects designed to aim to improve business outcomes of micro and small, informal women-led enterprises in low- and middle-income countries. To explain this, let us begin by presenting Dona Odete and Ester (fictional names). They are both female informal entrepreneurs living and working in Maputo, the capital of Mozambique.
Dona Odete sells lettuce and kale on the matope (changana for mud) on top of a capulana sheet in an informal market in the middle of Maputo. She is 35 years old and completed only the primary school. She started trading when her husband died tragically 10 years ago and left her with 4 children.
All of her children finished school already. Her and most of her colleagues live in households earning less than 2.5 USD a day. Even though she is trading for all those years, she wants to learn how to do it better. How to earn more and protect her business and her family from shocks.
Now meet Ester. She sells coconut yogurt on the outskirts of the city. She makes them in her parents’ kitchen and sells to her friends and family, a craft she learned from her grandmother, who made it for parties and family gatherings. Now that her family has a fridge in the house, she is able to make bigger quantities and sell later. The money she earns she is saving for a better future and also contributes to the household.
Ester is young, 22 years old, and full of energy. She finished school but didn’t have the chance to go to university, so she learns by her own. She reads inspirational books, watches YouTube videos about entrepreneurship, and is connected through social media.
She is determined to become an independent woman, invest in her business growth, and engage with her clients. Ester has the entrepreneurial mindset needed to succeed. All she needs are the skills and opportunities to take a step further.
These two women participated in two female entrepreneurship projects of the Mozambique-based social incubator for women economic empowerment MUVA. One, MUVA+, focused on informal market sellers of vegetable and fruits. The second was a micro business acceleration programme, called PAM, for female entrepreneurs who mostly operated in the informal sector.
One-size-fits-all won’t do
What the MUVA experience shows is that it is not only important to design enterprise development projects to economically empower female entrepreneurs in the informal sector, but that these projects should be tailored for different target groups, opposing one-size-fits-all approaches. Women entrepreneurs have different motivations and capacities that shape their personal opportunities and challenges.
By assessing MUVA’s two female entrepreneurship projects, a recently published paper contributes to the evidence on how to support female entrepreneurs in the informal sector in low- and middle-income countries, particularly in sub-Saharan Africa.
Business acceleration programmes, such as PAM, can be an attractive and effective enterprise development intervention for entrepreneurs that spotted an opportunity in the market but need support to grow their business.
MUVA+, on the other side, shows that an often-forgotten group of self-employed informal urban market sellers are not as often proclaimed “survivalists” but also are motivated entrepreneurs who want to stay in business and seek opportunities to grow their business – but need targeted and tailored support.
The literature on female entrepreneurship and informality, including the MUVA case, shows that gender inequality very much shapes the choice between formal and informal work.
Women often have no alternative than to become an informal entrepreneur primarily because of the way the formal economy is organised and remain informal because of prevailing social norms around reproduction, codes of behaviour, and practices in these sociocultural contexts.
Although having a business could give these women opportunities of empowerment, the reality is that they often stay vulnerable for harassment and discrimination. Furthermore, criminalising the informal sector impacts negatively on women’s livelihoods, incomes, and wellbeing, while recognition is needed to improve the quality of and returns to work in the informal economy.
Because the challenges, risks, and opportunities for informal women entrepreneurs are different for each specific group depending on the specific context and personal development, interventions should focus on meeting participants’ specific needs in their specific context (often a balance between soft skills and hard skills). This combined with a human-centred approach could result in better self-esteem, higher self-confidence, and better recognition of gender constraints.
This is what MUVA did. Both programmes resulted in positive business outcomes such as increased sales, reduced costs, and improved profits. Evidence also confirms the limited value of formalisation for most of these women-led businesses.
Formalisation should be perceived as a complex and dynamic process, whereby individuals try to balance out costs and benefits, which often play out differently for men and women. Making the formal sector more attractive does not count as much for most of the informal women entrepreneurs but improving the circumstances of doing business in the informal sector does.
The MUVA experience indeed shows “formalising” a business is a process in which entrepreneurs gain step by step skills of keeping books, opening bank accounts, and separating their personal and business accounts, among many others, whether they register their business or not.
MUVA focuses on working with the individual entrepreneurs, but uses the evidence to influence public policy, which is important to create some policy dialogues or spaces to discuss with governments and donors how to invest the best in the informal sector, to improve opportunities and reduce constraints for female entrepreneurs, and obstructing attitudes and social norms against female entrepreneurs.
Should we keep focusing on formalisation for the sake of it or should we be focusing on supporting businesses to grow to a level where formalising would be an opportunity rather than a burden? MUVA’s experience of bringing a human-centred approach in enterprise development projects, shows the answer lies more towards the latter.
This blog post and paper is part of the IDS-MUVA series on female entrepreneurship programmes.