“How Financial Exclusion Limits the Development of the Informal Sector”

According to the Informal Economy Report 2024 published by Moniepoint, the informal sector is unable to access financing and other development opportunities due to difficulties in accessing funds.

The report notes that many development institution programmes and initiatives aimed at supporting businesses of all sizes in the country are not being valued due to the lack of financial inclusion.

It noted: “This lack of access to banking services also affects them in other ways. There are many programs and initiatives by development institutions, including the Nigerian government, that aim to support businesses of all sizes in the country.

“However, because most businesses in the informal economy are invisible, access to them remains limited. They also lack the required documentation to apply for these grants. This means that while opportunities exist for them, they are often unable to access them in a way that could help them grow significantly.”

Although financing for businesses in the informal sector is important, many of them cannot obtain external financing and often turn to family and friends for loans.

“The lack of financial history also means that many of them are unable to obtain credit through existing formal systems,” it said.

The report explained that while many metropolitan areas in the country have ATMs and banks, many others remain without them.

“Access to banking services has been difficult for businesses in the informal economy because they often did not have the requirements to use banking services in a traditional way. Building banking and payment services with these businesses in mind allowed us to provide them with tools that meet their specific needs.

“Providing banking services to these businesses, in accordance with applicable regulations, could lead many of them to move to a more formal system. This means increased access to systemic benefits that are typically available to their more formal counterparts,” it reads.

Highlighting the need to simplify access to credit, the report states: “Obtaining credit remains a challenge for many businesses, especially those operating in the informal economy. Without formal banking records or financial histories, proper access to these businesses has been difficult or impossible for many traditional players. Where they are provided with credit, it is often not sufficient to get their businesses off the ground.”

The report notes that stakeholder collaboration is key to breaking down barriers to formalising business activity.

On how businesses can be formalized through inter-agency collaboration, it said: “By working with government agencies, we have made it easier for businesses to obtain the necessary documentation to become formal. Our ongoing partnership with the Corporate Affairs Commission (CAC) allows business owners to register their business names with the CAC directly on our platform.”