#InformalTalks: Great 2nd webinar on Informal Economy and Social protection on July 26th!

Responses to questions on skills’ enhancement

An emerging generation in the informal sector in Africa is in the Information tech. What is your thought about the future in this regard? (E.M)

ICTs are a powerful leverage for micro-enterprises’ growth in the informal sector, including its lower tier and examples are many of successful use of simple cell phones which dissemination rate is already very high even in the most remote areas. This is how in Ghana poor women collecting shea nuts and processing butter of the same name – products entering into the processing of expensive cosmetics – and organised in associations can synchronise their efforts along with international prices thanks to SMS received on their ordinary cell phones. Or also in Maputo and other cities of Mozambique where some 50,000 craftsmen and women, plumbers, electricians, mechanicals, masons, hairdressers have been able to expand the number of their clients thanks to a platform “Biscate” that gathers some 30,000 clients and the notation of satisfaction has come to replace, to the advantage of the informal operators, skills certification that educational and vocational training systems grant sparingly or not at all for skills acquired on the job in the informal sector.

ICTs are tools that are now part of the informal economy, and time is far when at the beginning of the reflexions on the informal economy in the 1970s, low capital and labour intensive technologies were identifying characteristics of the informal sector. Cell-phones for example are now widely spread in developing countries and there are many successful good practices of their use for improving the working and living conditions of informal workers and operators.

The informal sector/economy is also present in Europe and I wonder if the perception is very clear how it functions here.  Example - there is a certain focus on helping immigrants through not for profit skills training that later allows integration ... but also there is policy on all sides claiming that communities are to solve their own problems, self-organise to protect their work or their social centre institutions, even galleries, clubs are now asked to be part of an informal economy policy instead of public policy ... (P.K)

Personally I prefer considering that what we call the informal economy or the informal sector is not exactly the same phenomenon as precarious or illegal work in developed countries. But it is true that immigrants facing exclusion from the labour market, in Europe for instance, may develop informal activities such as street vending or other small crafts activities.

Skills training facilitating integration are privileged by public authorities and at the same time self-organisation is encouraged by associations operating in support to these populations. I would say that this is the domain of the Social and Solidarity Economy (SSE) and it is within the framework of SSE that self-organisation of migrants’ associations should be envisaged.

 

Webinar 2: Responses to questions on access to credit

In Egypt we have the problem of indebtedness...many microfinance beneficiaries are imprisoned because they have failed to repay loan amounts...at the same time the government and the central bank are promoting financial inclusion...how do we reconcile this contradictory messages? small borrowers are reluctant to approach banks because at least with microfinance institutions, if they fail to pay on time, there is some grace time allowed albeit on an informal basis .  (N. G.)

Regarding micro-credit and micro-finance institutions, it is important to clearly distinguish between pure private lending institutions in search of profit and non-profit institutions of the social and solidarity economy that try to support the poor. The former seek to increase the amounts and the number of borrowers and the subsequent profit whatever the conditions of the beneficiaries whereas the latter have in mind the wellbeing of the beneficiaries and aim at transforming their dependency into autonomy and self-esteem. It is striking to remark that the Grameen Bank or the SEWA Bank obtain very high rates of recovery (higher than 90-95%).

It is very likely that borrowers unable to repay their loan have been pushed to over-indebtedness by lenders, disregarding previous defaults of repayment. Social enterprises would not have proceeded the same way. Therefore I believe that the banking system should not be incentivised in order to enter into the market of microfinance that should be left to the social enterprises of the social and solidarity economy that is able to follow up and monitor their beneficiaries who are not only “clients”.

Financial inclusion deserves to be promoted but wisely and with a clear division of labour between the official banking system on the one hand, and a SSE system that needs to be supported and encouraged on the other hand.

Please refer to thematic briefs N°2 on micro-finance and N°8 on micro-credit on RNSF platform (https://europa.eu/capacity4dev/iesf/minisite/6-thematic-briefs). You will find in these briefs references to the book (in French) I mentioned during my presentation: Isabelle Guérin: La microfinance et ses dérives. Emanciper, discipliner ou exploiter ? (Microfinance and its drifts. Empowering, disciplining or exploiting?), 2015, Demopolis, 291p.

How can we get access to microcredit for informal operators? Particularly for Liberia to lift youths out of poverty.  (A. U.)

Generally the youth has more difficulties to access credit from formal banks as well as from micro-finance institutions and self-help groups.

In designing micro finance support with young people we should keep in mind that they often do save and/or borrow already. Their sources of income might be small and irregular. When they save they often do so in unsafe places. They borrow, most often informally, to start a business but also to continue with their education. They want access to formal financial services that can better meet their growing needs.

Market research studies and demonstration projects conducted in the past across different continents have demonstrated that youth do have the capacity to save (SEEP, 2013).

Experience shows that when designing programming for micro finance with youth, it is recommended to promote the establishment and tapping into formal savings accounts prior to using other types of financial services, especially loans. This savings-first approach builds young people’s capacity and confidence in using formal financial services and serves as a basis for building assets for the future.

There is emerging evidence that youth have the capacity to repay loans and that youth loans are not riskier than adult loans. However youth loans continue to be very limited. Despite some of the innovations and emerging evidence on the viability of youth loans, Financial Services Projects remain reluctant to offer youth loans at scale because youth are still perceived as being too risky. This creates a vicious cycle, where a lack of large demonstration projects prevents more extensive evaluations of effective mechanisms for offering credit to young people.

Kilara, T., and A. Latortue, 2012. Emerging Perspectives on Youth Savings. Focus Note 82. Washington, D.C.: CGAP.

Kilara, T., B. Magnoni, and E. Zimmerman. 2014. The Business Case for Youth Savings: A Framework. Focus Note 96 in:  IFAD, 2015, Lessons learned Youth access to rural finance: Inclusive rural financial services, Lessons Learned series is prepared by the IFAD Policy and Technical Advisory Division, IFAD, Rome.

SEEP. 2013. Understanding Youth and Their Financial Needs. Washington, D.C.: SEEP.

 

Extension of social protection

How can we make social protection policies more inclusive to ensure that all stakeholders including non-state actors are involved in the monitoring and evaluation of social protection interventions? (A. A)

In countries where the State is conscious that the objective of universalization of social protection cannot be achieved through its sole efforts and where non-state actors have the right and the room to intervene, the latter are often in charge of projects covering specific populations in specific localities or regions where they can organise these populations or revitalise their traditional self-help associations in order to boost their capacities of saving and sensitise them to use a part of these savings for contributing to some forms of social protection (such as health coverage, old-age pensions, etc.). Generally these populations, organised by craft or by geographical area, are not numerous enough to be able to create mutual funds to these aims. In such cases, it is wise to adhere to existing mutual funds that already have achieved successful results. In the francophone African countries of the West African Economic and Monetary Union (WAEMU) exists a strong and influential network of mutual funds called PASS (www.pass-mut.org), based in Côte d’Ivoire, and play the role of an important partner of the State in several countries. The objective of universalization of social protection is generally pursued by the states with the consciousness that such an objective needs partnership with all stakeholders: the private sector, the social and solidarity economy and more generally all non-state actors. Coordination and networking are therefore required to ensure that all these actors are involved in the monitoring and evaluation of all the process, and that no one is left behind.

Still, whatever the high degree of cooperation and coordination, not all populations will be able to contribute to their own social protection and social assistance and social safety nets will remain necessary at some points. But policies and strategies toward universalization of social protection must be designed to make sure that all potential contributors are in the position of effectively contributing, a prerequisite to a sustainable system of social protection.

What are the strategies for proper coordination of social protection interventions among donors so that we do not continue duplicating interventions unnecessarily? What coordination strategies exist by EU on social protection in West Africa region?  (A.A.)

The expansion of social protection is key for policies aiming at encouraging the transition from the informal to the formal economy. As early as 2011, the African Union adopted a Social Protection Plan for the Informal Economy and Rural Workers (SPIREWORK), “in recognition of significant contribution of the informal economy to GDP, jobs creation, poverty alleviation, social cohesion and political stability in Africa”. The African Union acknowledges that “social protection (…) has the potential to be the backbone of any strategy towards the modernization or (…) formalisation of the informal economy”.

Universal social protection is goal 1.3 of the SDGs: “Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and vulnerable” and there are many other related targets.

Various coalitions, partnerships and initiatives have emerged to deal with these concerns: the Inter-agency Social Protection Assessments (https://ispatools.org/) that defines social protection as a set of policies and programs aimed at preventing or protecting all people against poverty, vulnerability and social exclusion, and designed a Core Diagnostic Instrument (CODI), in partnership with the major international institutions and bilateral donors, the EU Social Protection Systems Programme (http://www.oecd.org/dev/inclusivesocietiesanddevelopment/eu-social-prot…), in partnership with OECD and Finland or also Socialprotection.org (http://socialprotection.org/). 

The World Bank and the ILO (which are partners in the previous coalitions) also decided to gather their efforts in a Universal Social Protection Initiative towards the achievement of SDGs goal 1.3. “Achieving universality would facilitate the delivery of the World Bank’s corporate goals of reducing poverty and increasing shared prosperity and the ILO’s mandate of promoting decent work and social protection for all” (and the transition from the informal to the formal economy).

Although the informal economy is not central in these reflexions and coalitions, it is however a necessary step to tackle with toward the objective of universalization.