Formal and Informal Microenterprises
Topic: Informality
Author: Jessica Leino
This note uses unique data from enterprise surveys in three African countries to examine the characteristics of informal and formal microenterprises. Entrepreneurs in the informal sector have different motivations for starting a business from their formal sector counterparts, with about twice as many informal entrepreneurs citing lack of alternative employment opportunities as their main motivation. Female entrepreneurs are more likely to operate in the informal sector, with 38 percent of informal businesses and only a quarter of formal businesses owned by women. Differences in entrepreneur characteristics translate into differences in business practices, with informal firms less than half as likely to have paid employees and nearly half as likely to have bank accounts.