The informal economy makes up a momentous magnitude of the global economy. The sector generally contributes a huge percentage of Africa’s GDP.
Microscopic attention has been paid to the role of the informal sector in furthering growth- even though it is a huge opportunity for reasonable income generation for many people.
Informal businesses typically face many challenges:
- Non-inclusion of financial services and access to credit for useful investments.
- Lack of secure income including employment benefits and collective protection.
- Informal businesses struggle to secure access to traditional banking services.
How Might African Economies Promote The Informal Sector?
- Aptly address the risks associated with financing informal businesses. African governments should intend to allow better access to financing, and foster the availability of information on the sector.
- Facilitation of access to formal financing channels in boosting informal businesses could be, among other things, a way to incentivize them to embrace formality.
- Policy makers could work with the informal sector and embrace access to information and generation of knowledge on the sector.
- Competency development may be crucial for lenders such as banks and other financial institutions to better manage risks associated with lending to informal businesses.
- Kenya has done a commendable job at accommodating medical coverage through NHIF, a proposal by Kenya’s National Health Insurance Fund Amendment Bill 2021 that has helped guarantee a comprehensive health coverage. The bill makes it mandatory for all Kenyans 18 years or older to have NHIF membership either through employment or by voluntary nature for the self-employed.
- Seize and leverage available opportunities in digitization and partnerships through digital technologies that may reduce risks, increase transparency, and lower costs. Strategic partnerships can be low-hanging fruit for financing to informal businesses.
- Innovative financing mechanisms have seen a rise across Africa by leveraging technology. Kenya is for example leveraging and thriving on innovative ideas like the use of mobile payment platforms, legalizing chamas (self-help groups) and partnerships with microfinance institutions to tap into the informal sector.
