CLIENT
Financial Sector Deepening Kenya (FSDK)
DATE
2021
DATA SOURCES
Kenya FinAccess 2019, MSME Survey 2016, Interview with business owners
CAPABILITIES
Segmentation, survey analysis, qualitative research, network mapping, stakeholder engagement
What is the value of (in)formality for MSEs?
Objective
The objective of the study was to explore the drivers of formality and informality for Micro and Small Enterprises (MSEs) in Kenya, using Nairobi as a case study. MSEs make a substantial contribution to livelihoods and inclusive growth in Kenya, accounting for 24% of the country’s GDP, over 90% of private-sector enterprises, and 93% of the labour force. Partly due to their informality, however, they continue to face numerous challenges.
The study aimed to deepen the understanding of the incentives, dynamics and organisation of MSE segments, to support the development of a more enabling environment for business resilience and growth. In addition, it aimed to answer key policy questions, including:
- What are the different incentives that underlie MSE decisions on whether to and how to formalise?
- How do MSE segments contribute to employment, growth and household resilience, and how does this vary across gender and age?
- What has been the effect of COVID-19 economic disruption on different MSE segments?
- What role could the government play in creating an enabling environment for informal MSE segments?
Methodology
Drawing on an innovative framework, the study explores the multidimensional nature of (in)formality and its underlying incentives.
71point4 teamed up with Nairobi-based qualitative research firm, Gmaurich Insights, who ran the qualitative interviews, including in-depth interviews with business owners as well as a network mapping exercise to better understand their relationships with customers, suppliers and financial services providers. The team also conducted several interviews with key public sector stakeholders to understand their viewpoints, engagements and existing strategies to address the challenges faced by the MSE sector.
In addition, 71point4 analysed various datasets including the 2019 Kenya FinAccess survey and the 2016 MSME survey to quantify and profile MSE segments.
Outcomes
The findings shed new light on barriers to MSE operations, incentives, growth and resilience, suggesting ways to improve the environment for MSEs and their contribution to the wider economy. Since its launch, the study has provided valuable insight and guidance to key decision makers in the sector, notably the SME Advisory Unit, Executive Office of the President of Kenya.
